Outset Medical Inc Stock

Thank you. Good day and thank you for standing by. Welcome to the Outset Medical Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Tina Jacobson, Investor Relations. Please go ahead.

Good afternoon everyone and welcome to Outset Medical's second quarter 2026 earnings call. Today's speakers are Leslie Trigg, Chair and Chief Executive Officer and Renee Gaeta, Chief Financial Officer. The company issued a news release after the close of the market today, found in the investor section of Outsetmedical.com. This call is being recorded and will be archived there as well. All forward-looking statements made during today's call are intended to be protected under the Private Securities Litigation Reform Act of 1995. Outset assumes no obligation these statements. For a list and description of the risks and uncertainties associated with the business, please refer to Outset's public filings with the Securities and Exchange Commission, including its latest annual and quarterly reports.

With that, I'll open the call to Leslie Triggs. Leslie?.

Good afternoon everyone and thank you for joining us. The second quarter reflected steady execution across revenue, gross margin, operating expense discipline, and cash management. We continue to make meaningful commercial progress while advancing our mission to improve dialysis patient outcomes at a lower cost and with less complexity. We are confident that the impact of that progress will become increasingly evident over time. I'll begin today with financial performance in the second quarter. Revenue of $31.6 million was up 1% year-over-year and up 14% sequentially. Our ongoing margin expansion program delivered a non-GAAP gross margin of 42%, a significant improvement compared to last year.

With the solid second quarter results, we are reiterating full year 2026 revenue guidance of $125 million to $130 million. During the second quarter, we completed our highest number of successful new site implementations in several years. At one system with several sites in Texas, our clinical excellence team trained over 100 nurses who in turn supported 956 treatments in their first 60 days. Other successful implementations were completed at a new top 10 health system customer for Outset, as well as at hospitals that are part of large regional health systems and post-acute care facilities. What stands out most is what happened after the initial Go Live implementation. Outset has established a clinical excellence team focused on helping our customers optimize the clinical, financial, and operational value of their Tableau insourcing programs over the long term. hospital customer is paired with a clinical excellence team member who works closely with them to identify the outcomes that matter most to their organization and then trends tracks and shares the key performance indicators on a regular basis Tableau's unique data ecosystem powers this process, providing valuable treatment and clinical program insights to our customers. The impact of this structured approach to customer success is reflected in both customer satisfaction and customer expansion.

During the quarter we conducted an independent voice of the customer assessment and when asked how likely they were to recommend Outset, our customers gave us an average score of 8.8 out of 10. Combined with the measurable results we continue to deliver, this strong level of customer advocacy is central to our forward commercial momentum and high customer retention and creates opportunities for continued growth across our installed base. We're increasingly seeing customers expand their use of Tableau, both by deploying the technology at additional sites across their health systems and by broadening use within existing facilities. A strong customer experience was instrumental in securing a meaningful recent commercial win. We are privileged to have signed a $40 million refresh agreement with HCA Healthcare. The agreement reinforces HCA and outsets long-term commitment to in-source dialysis, which extends through 2028. After carefully evaluating comparative outcomes, HCA opted to recommit to Tableau, underscoring the clinical and operational value that it continues to deliver across their nationwide system.

The agreement provides a meaningful foundation of contracted backlog, enhancing our visibility, and supporting revenue predictability. Under the refresh agreement, HCA facilities currently partnering with Outset for in-source dialysis will update their fleet. importantly the 40 million dollar value does not include the potential to expand over time into additional HCA facilities not yet equipped with CABLO. This marks our first refresh win, and that's an important milestone as we continue to capitalize on a refresh cycle that, over the next several years, may include roughly 3,000 consoles and up to $150 million in console revenue opportunity. Given customer confidentiality considerations, we're limited in the level of detail we can provide and don't intend to disclose HCA specific information today or going forward. That said, HCA is a recognized leader in healthcare, and we believe its continued commitment to Tableau serves as strong validation that, over time, can help support broader adoption across health systems of all sizes. We believe the introduction of the Next Generation Tableau System will provide a great opportunity to catalyze customer refresh decisions. NextGen Tableau combines hardware and software enhancements designed to improve performance and reliability with advanced cybersecurity capabilities that are increasingly crucial for health systems.

We're working on the pilot phase now in preparation for a successful broader launch and we'll continue to share updates as we progress. Reflecting on the quarter's performance from a commercial perspective, the addition of Derek Elliott as our new Executive Vice President of Commercial has marked our next phase of commercial evolution. Over the last several years, we've standardized our sales process, built systems to support it, and refined our go-to-market strategy to create a more disciplined and predictable commercial engine. We're now scaling that foundation to increasingly execute with consistency, conversion, and near-term objectives include further infusing the capital sales organization with the right quantity and quality of talent. expanding sales coverage to further accelerate our inroads into the top 250 health systems where we believe Tableau can deliver significant impact. We believe we have the right combination of commercial rigor and clinical expertise to guide this next phase. DERIS impact is being reinforced by our Chief Nursing Officer, Brittany McGill, whose first-hand understanding of our customers' pain points and workflows brings an invaluable clinical perspective. We're excited about our commercial and clinical leadership and expect their complimentary expertise to position us well to engage health systems, address their most pressing needs, and accelerate customer adoption and conversion.

And with that, I will turn the call over to Renee.

Thank you, Leslie, and good afternoon, everyone. Total revenue in the second quarter was $31.6 million, up approximately 1% compared to the second quarter of last year. product revenue was $21.9 million, down 5% against a challenging prior year growth comparison. Console revenue of $9.5 million grew 6% year-over-year, and consumable revenue of $12.4 million was down 12% against a double-digit growth comparison last year. Service and other revenue of $9.7 million grew 17% compared to last year on a strong volume and ASP increases. Recurring revenue, which includes consumables, service, implementation services, and freight, was $22.1 million, down 2% compared to last year. Turning next to the P&L, please refer to the tables in today's earnings release for a reconciliation of GAAP to non-GAAP measures. Second quarter non-GAAP gross margin was 42.2%, up over 380 basis points compared to last year. driven primarily by product cost improvements, reduced overhead, and service efficiencies.

Product gross margin was 46.1%, down about 280 basis points compared to last year due to a higher mix of console sales within product revenue. and service and other gross margin was 33.4% of over 2,400 basis points. Gross margin performance reflects strong execution and keeps us on track towards our next milestone of a 50% company-wide gross margin. Moving to operating expenses. Second quarter non-GAAP operating expenses of $25.8 million increased 1% compared to last year. with revenue growth. Non-GAAP operating loss was $12.4 million, an improvement of 7% compared to last year. These results reflect continued progress as we work to achieve profitability. Moving to the balance sheet, we ended the quarter with $151 million in cash, cash equivalents, short-term investments, and restricted cash. With ongoing expense discipline and working capital management, cash use was $9.5 million in the second quarter, keeping us on track to use less than $40 million in cash for the full year.

Turning to our guidance for 2026, we continue to expect full year revenue of 125 to 130 million dollars, representing growth of 5 to 9% over last year. with most of the growth expected in the third and fourth quarters. Importantly, our confidence in this outlook is supported by a strong commercial pipeline and the foundational contracted backlog provided by the HCA Refresh Agreement. With that, I will turn the call back over to Leslie. Thanks, Renee.

I'd like to close by thanking everyone on this call for your continued support. While the natural variability of capital sales has made our performance less predictable over the past year, we are confident in our ability to continue strengthening our commercial organization and sales process to improve visibility and predictability. The opportunity ahead of outset has never been more compelling. With a customer base that now includes all 10 of the largest 10 health systems, all 10 of the largest 10 post-acute providers, and approximately 30% of the top 100 IDNs, we are reshaping how dialysis care is delivered across a large, untapped market that needs better, lower-cost solutions. Over the next few years, we expect several new console growth tailwinds to emerge. First, the refresh cycle. Second, our launch of the next-gen Tableau. Third, our newly formalized customer success team and program, which is designed to expand same-store console and treatment sales, while also driving new site expansion within our existing customer base.

Further, we continue to expand our layers of recurring revenue, starting with consumables and service, and buttressed by EMR annual maintenance and implementation services. We're demonstrating traction against a sizable new refresh opportunity and we're well positioned to capitalize on it with a next generation platform and a commercial team strengthened by proven leadership and Finally, we've built a foundation to support scale with improving gross margin disciplined expense and cash management and a clear path to profitability. We have the strategy, the technology, and the team in place to execute consistently and create long-term value and we look forward to sharing continued progress in the years ahead. With that we are ready for Q&A. Operator please open the line.

Thank you. To ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. We will now go to our first question. One moment, please. And your first question today.

comes from the line of Rick Wise from Stifel. Please go ahead. Good afternoon, Leslie. Hi, Renee. It's great to see the quarter, and particularly on the console side. And maybe we can just start there. So console revs at nine and a half minutes, million or nicely above, I think, a consensus number, something like 6.4 million or so. That's really solid outperformance. Good to see. Maybe unpack that for us, if you could.

How much of that outperformance is tied to the HCA agreement? How much is tied? How do we break it down between that and the early impact of net sales? broadly next gen Tadlo launch versus that first quarter lingering you know, capital order, you know, maybe did it close this quarter or some of it? Or he said, hopefully, Is this a new console or a one-time pull forward? Just help us understand all the moving pieces there. Obviously, it's an important number and it's good to see.

Sure, Rick. This is Renee. I'll take a stab at that and then have Leslie jump in if she has any elements to add. I would say it's all of that to some extent one or another. I would say yes, we are definitely pleased with our Q2 performance and coming off of the announcement of the HCA refresh, I will provide some color there and that HCA was a part of our Q2 pipeline and a part of our strong console performance during the quarter. Due to customer confidentiality reasons, I'm not going to give much more specifics than that. That is not to say that we also had new expansion customers, other console placements included. We continue to have a broad range within our pipeline of deal size, and we were glad to see the closed completion of certain of those deals in the quarter.

I think that was well said. I would just add that I think this was a quarter when all parts of the business performed as we had expected and I was very pleased to see the distribution across sort of the two big parts of our commercial strategy which is one, current customer expansion and two, new customer acquisition and then you alluded to some of these new tailwinds, new growth that we haven't necessarily had at our back in the past. And I think that some of those new tailwinds be it, refresh opportunity ahead of us a new commercial leader this new very sort of structured and formalized customer success program and team I think this was sort of the first quarter where we were seeing some green shoots of all of those tailwinds coming into play in a nice way.

Great. And also, it was said to me that you called out, but maybe you could talk about it a little more and help us better understand. Consumer revenue growth was down 9%. In the first quarter, it declined. I just want to make sure I'm understanding what that's all about. And to what impact, if at all, is this new systems and volume not quite up yet? you know, does HCA or the next-gen launch reverse that trend or just Again, just what does it mean and how do we think about the rest of the year from that perspective?.

Yes, it's a great question, Rick, and a fair one. I would say I would start off with, you know, we are certainly up against a tough comparable from the prior year. In 2025, had a really strong Q1 and Q2 on the consumable side, partly driven by the flu season and census in that year, which we have not seen as strong of an impact in 2026. And then, of course, as you might remember, we had some of the ordering cadence volume in 2025, which we believe is now past us. I think when we take a look at understanding that our consumable revenue is going to be driven by ordering timing we really look down a layer into the device utilization information that we have and we continue to see strong utilization across our customer segments. And so there is nothing alarming or concerning for us. Again, we're just up against a really hard comp.

And then I would say, as we look forward to the back half of the year and when we talk about our guidance as a whole, consumable revenue growth is anticipated to be in line with total revenue expectations for the year. We hope that those have tailwinds going forward and utilization not only holds up but maybe expands beyond that.

The only thing I would add to that, that's maybe important to note, we had just mentioned a second ago in the prepared remarks that we did our largest number of new site implementations over the past several years in this past quarter. That is a reflection, and I think we had talked about this in a past quarter, That is a reflection of a little bit longer delay that we had seen between console sale and the timing of the actual installation and training of the site. And so we did actually see a lot of this finally flow through Q2 to install and implementation. So we believe that that will also lead to more normal order patterns going forward. But to Renee's point, we have sort of exquisite data on utilization because Tableau is transmitting after every treatment, every day, every console, everywhere in the nation. So we can view this on an hour by hour and day by day basis so our visibility into actual console utilization is pristine, and we have continued to see very stable utilization, no material changes in Q2.

Got you. And I'm going to be selfish and ask one more if I could. I'm right in the middle as I look at the year as a whole on a revenue basis. I'm right in the middle of your 125, 130 range. That's my number. You just beat my second quarter number by two. 2.8 million. Just help me, help us think through, so one, what do I do with the 2.8? Or is, just help me think about the cadence of the second half, is, in terms of seasonality or anything else? Is the third quarter more, in line or more likely in line with the second quarter performance for some reason. or it's all going to come home on the fourth, or I just wanna make sure we know what to do with these moving pieces in a thoughtful way.

Yes, it's a great question. I would certainly anchor to your comments around there is an element of seasonality within MedTech and Q3. I would say that that's also driven by census of what's happening in our hospitals, customers, and effectively you looking towards certainly Q3. is a stronger quarter for us is how I would sort of frame it that you know yes we've kept the full year guide so that's the full year number that we are targeting towards and we don't while we don't get guidance to the quarters certainly you're you're thinking about could potentially that be Q3 be impacted by some seasonality and we would expect a stronger Q4, that is an appropriate assumption. Also because there's sometimes a Q4, some seasonality, positive seasonality on the capital sales side, right? For capital equipment businesses like ours, often see a stronger Q4 as hospitals and health systems spend through budget prior to year end.

Great. Thank you so much and good to see you. Yes. Thank you. Thank you.

We will now take the next question. And the next question comes from the line of Josh Jennings from TD Cowan. Please go ahead.

Hi, this is Brian here for Josh. Thank you for taking the questions. On HCA, I'm not sure what constitutes specifics, but can you speak broadly about the phasing of the agreement across the three years? I guess my question is really, is it fair to assume that 2027 will likely be the biggest year for revenue recognition from the agreement?.

You know, Brian, it's a great question. You're not the only one to ask it. I would say, you know, we certainly are working very closely with HCA. As you pointed out, it goes all the way through 2028. We have visibility to 2026 and, of course, you know, have included our revenue guidance numbers has factored that in when we reiterated guidance for the year. Beyond that, we look forward to providing 2027 guidance at the appropriate time and we do that consistently every year. It's effectively at this point not going to speak to how much of that is going to be in 27 or 28.

And look, I also look forward to having other agreements, other refresh opportunities that we've now started to highlight and think that we're entering this cycle with our customers as well as continued penetration in existing accountants. such that it isn't necessarily one item that we're going to be highlighting or speaking to. We've got a robust pipeline, a robust customer list and dynamics and plenty of opportunity to penetrate into customers that we have in hand today.

Okay, that makes sense. Thank you for that. Maybe changing topics to Next Gen Tableau, what's been the feedback to date from the initial users? Can you remind us of the milestones you're looking forward to achieve in order to transition to a full launch?.

Sure, I'm happy to take that. Brian, this is Leslie. So we are working on the pilot phase right now and looking forward to a full launch. I think maybe taking a half step back, philosophically speaking, given the significance of this update, we obviously want to make sure we really, really, really get this right and that the experience out of the gate goes exactly as expected just given the size of the install base and the size of the customer base that we support and we support now Tableau and our team support about a million treatments a year. So it's critically important to kind of, you know, take a very measured approach to the rollout and focus on doing it well versus quickly. The sales team has started to educate our customers about the benefits and the value and in terms of the other part of your question about what's the receptivity, we are hearing a lot of enthusiasm. the why behind that enthusiasm. Health systems really are increasingly looking for medical devices that meet FDA's highest cybersecurity bar, as we do. This next-gen release is also packed with a couple of really kind of cool new features and functions that both improve the user experience, the clinician experience, but also day-to-day device performance that we're excited about as well.

So we do expect customer receptivity to be high when we progress to next-gen. full launch, which we're excited to do. In terms of the metrics that we're looking for, obviously I'm not going to get into a ton of detail just for competitive reasons about that, but we with any new release, whether it's software, hardware, in this case both, we're going to make sure that, as mentioned, the user experience, the user feedback, the the performance of the system, and the performance of the update are as absolutely perfect as they can possibly be. So we will be looking to metrics and data coming out of the pilot phase to ensure that it's meeting the mark before we roll it out in full.

Okay, terrific. Thank you both. Thank you.

Thank you. That was our final question for today. I will now hand back to Lesley for final remarks.

Thank you, and thanks to all of you for joining today. I'd like to close by thanking our customers and our team for the difference that they make every day in the lives of dialysis patients. Thank you again and have a great evening.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Outset Medical First Quarter 2026 Earnings Conference Call.

[Operator Instructions] I would now like to turn the call over to Jim Mazzolla, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Outset Medical's First Quarter 2026 Earnings Call. Today's speakers are Leslie Trigg, Chair and Chief Executive Officer; Derick Elliott, EVP of Commercial; and Renee Gaeta, Chief Financial Officer.

The company issued a news release after the close of the market today, which can be found on the Investor pages of outsetmedical.com. This call is being recorded and will be archived on the Investors section of the Outset Medical website.

All forward-looking statements made during today's call are intended to be protected under the Private Securities Litigation Reform Act of 1995. Outset assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with the business, please refer to Outset's public filings with the Securities and Exchange Commission, including its latest annual and quarterly reports.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. The first quarter reflected consistent execution across console utilization, new customer additions, gross margin expansion and disciplined cash management. While variability in capital order timing impacted our capital sales performance in the quarter, we remain confident in our growth plans for the year, supported by the upcoming launch of the next-generation Tablo, a deep sales pipeline and the addition of an experienced commercial leader in Derick Elliott, who I'm pleased to personally introduce to you today.

Beginning with the quarter, revenue of $27.9 million was down slightly from the fourth quarter due to the lumpiness of capital sales, but we are confident in our growth plans for the full year. Treatments and service performed exactly as we expected, and we achieved excellent gross margin expansion with product margin reaching over 52%, the result of our ongoing margin expansion programs and mix.

More broadly, our end markets remain healthy and providers continue to allocate capital to projects that deliver clear benefits like those we offer. We are reaffirming our annual guidance today because we remain very confident in the depth, diversity and maturity of our pipeline. In particular, we are in the late stages of closing several large new deals and also an emerging refresh opportunity with existing customers who have older Tablo consoles and intend to buy replacement units in future quarters and years.

We had several key wins during the quarter and managed successful go-live implementations at both new customer sites and with existing customers expanding Tablo in-sourcing to new facilities within their network. A very recent example occurred just a few weeks ago in Texas.

Over the course of two days, our team set up dialysis service lines at multiple hospitals owned by one of the largest health systems in the country. These facilities had a total of approximately 400 beds and required support to train the nursing staff, ensure replicable procedures were in place, and prepare the internal team to manage the new service line.

Our service and implementation teams are truly the shining stars of Outset, extending our unique dialysis clinical expertise to customers. These teams ensure nurses are well trained, policies and procedures are in place, and that customers have a reliable, seamless transition from their outsourced provider to an in-sourced model.

Here in the second quarter, our team is replicating this success with go-live implementations occurring at more than 30 facilities involving nearly 200 consoles.

From an operational perspective, we are well prepared for the initial transition to next-generation Tablo later this quarter. We believe this platform is the first dialysis system cleared under the FDA's 2025 cybersecurity requirements and includes hardware and software enhancements that improve performance and system reliability.

A dialysis system that meets FDA's cybersecurity guidance helps protect hospitals by reducing the risk of compromise, limiting the risk of spread and safeguarding patients. We view Tablo's secure-bydesign principles, layered access controls and controls intended to reduce the risk of unauthorized access as a significant new competitive advantage. It provides yet another compelling value proposition on top of the cost savings and clinical outcomes improvements associated with in-sourcing, that we believe will be recognized by health systems amid ever-increasing concerns over cybersecurity, continuity of care and patient safety.

We plan to begin with a limited release, extending into the third quarter, then ramp to a full launch. In early customer discussions, there has been strong reception to the cybersecurity benefits and other enhancements that next-generation Tablo will provide. We are very excited for the rollout, and we'll share additional details on our August call.

Finally, I'd like to reiterate our strong cash position and unwavering focus on reaching profitability. During the quarter, we expanded margins to record levels and remained disciplined in our spending, both of which contributed to a lower-than-expected use of cash. I'm proud of the progress our team continues to make streamlining our supply chain and manufacturing operations, strengthening our service organization, becoming more efficient in every corner of the business and expanding our partnership and presence with acute and post-acute care providers.

Before Renee walks through the financials, I want to take a minute to introduce our new commercial leader, Derick Elliott. Derick has been on the job for a month and is already making an impact through his deep customer relationships, sales and marketing expertise and disciplined approach to pipeline management. I'd like to invite Derick to say a few words about himself and his priorities. Derick?

Thanks, Leslie, and good afternoon, everyone. As Leslie said, I joined Outset about 1 month ago and spent that time conducting a deep dive into the business. I've met with our leadership and sales teams, conducted thorough reviews of our pipeline and forecast methodology and visited many customers.

One month in, I can say with confidence that we have a great team, a strong and differentiated product fit, and customers who are deeply interested in improving the dialysis experience for their patients and organizations. When Leslie first approached me about this position, it became clear that my background was a unique fit for Outset.

I spent more than 30 years serving many of the same customers in sales leadership positions, including 17 years at Stryker across national accounts, capital equipment and professional services. More recently, I've worked closely with customers to sell EMR connectivity, software and data analytics across hospitals and health systems nationwide, which is all very similar to Outset's business, customer call points and value proposition.

My near-term priorities include working with our commercial team to prepare for the launch of next-generation Tablo and being very involved at the customer level as we advance and close business in 2026. We have a meaningful opportunity to improve the lives of patients and the providers who serve them. I see how that mission motivates people across Outset, and I'm proud to now be a part of this team.

With that, I'll turn the call over to Renee.

Thank you, Derick, and good afternoon, everyone. Revenue in the first quarter was $27.9 million, a 6% decrease from $29.8 million in the first quarter of 2025, largely due to some lumpiness in the timing of capital orders.

Product revenue was $18.6 million, down 13%. We anticipated this year-over-year dynamic on our last earnings call and also saw about $1 million in capital deals shifted from the first quarter and are expected to close later in the year. Capital sales were $5.4 million and consumable sales were a bit stronger than anticipated at $13.2 million. We remain very focused on our forecasting methodology for treatment, which, as I mentioned last quarter, now includes closer collaboration with our largest customers on their ordering patterns.

Service and other revenue of $9.3 million grew 10% from $8.5 million in the prior year period. Recurring revenue from the sale of Tablo consumables and service was $22.5 million, roughly flat sequentially and with the first quarter of 2025, both as we anticipated.

Next, I'll walk through gross margin and operating expenses for the quarter. Please refer to the table in today's earnings release for a reconciliation of GAAP to non-GAAP measures.

Non-GAAP gross margin expanded 620 basis points from last year, reaching 43.8% for the quarter. Product gross margin was driven by sales mix and increased 400 basis points to 52.4% from 48.4% in the first quarter of 2025. Service and other gross margin was 26.7%, increasing again sequentially and growing more than 1,600 basis points compared to 10.3% in the first quarter of 2025. This reflects strong execution and keeps us on track for the next milestone of 50% company-wide gross margin.

Moving to operating expenses. Non-GAAP operating expenses increased nearly 4% to $25.6 million compared to $24.6 million in the first quarter of 2025, driven by investments in systems and people. Non-GAAP operating loss was $13.4 million, even with the prior year period. Non-GAAP net loss of $15.4 million improved 32% compared to $22.8 million in the first quarter of 2025. These results reflect the continued progress as we work to achieve profitability.

Moving to our balance sheet. We ended the quarter with $161 million in cash, cash equivalents, short-term investments and restricted cash. We used approximately $12 million during the quarter, which is less than we previously forecasted due to ongoing expense discipline and working capital management. As we look ahead to our cash needs for the remainder of the year, we now anticipate using less than $40 million, which is roughly 15% better than we previously expected.

Turning to our guidance for 2026. We continue to expect revenue to be in the range of $125 million to $130 million, a 5% to 9% increase over 2025, with the majority of the 2026 growth coming in the third and fourth quarters. For non-GAAP gross margin, guidance assumes that as we ship more consoles, gross margin will approach the lower end of the range just as a higher mix of consumables will move gross margin towards the higher end of the range.

Balancing these two factors, we continue to expect gross margin to be in the low to mid-40% range for the full year. With that, I will turn the call back to Leslie for closing comments.

Thanks, Renee. I want to close by emphasizing Outset's strong market position. With more than 1,000 facilities using Tablo and more than 3.5 million cumulative treatments performed, we continue to gain ground as the leader of dialysis in-sourcing. We expect next-generation Tablo as the only dialysis system we believe to have been cleared under the FDA's rigorous guidelines for cybersecurity will continue to solidify and extend that position.

There are now more than 8 trillion data points in our cloud platform, which helps fuel our analytics and innovation engine, improve the customer experience and ultimately enhance patient care. With insights from this data repository and our strong suite of professional implementation services, Outset is increasingly recognized as the trusted partner.

We improve dialysis patient care while reducing costs and streamlining operations. And we get to see the results every day for customers of all sizes. For example, a regional 400-bed multisite health system reported an approximately sixfold decrease in their dialysis costs during their first year of in-sourcing with Outset and Tablo. This health system performed approximately 2,000 dialysis treatments per year, so the cost savings are substantial. As meaningful, they saw no central line bloodstream infections, improved their documentation and joint commission readiness, and operationalize a more sustainable staffing model.

All of the progress we've made provides a powerful foundation for value creation over the long term, which we look forward to demonstrating in the coming quarters and years. And with that, I think we are ready for Q&A. Operator, please open the lines.

[Operator Instructions] Your first question comes from the line of Rick Wise with Stifel.

You won't be surprised that I'm hoping you can give us a little more color on, as you described, the capital order variability and lumpiness. Just when I look back to the fourth quarter, you characterized the pipeline as building positively. It sounds like it still is and a healthy balance of larger and smaller deals, new and existing customers. And I doubt that's changed. What resulted in lumpiness? Why the delay? And maybe help us better understand, when we're likely to see those sales happen or what you're expecting?

Yes, sure. Rick, good to hear your voice. The, so yes, let's start with, I'll move through the sections of your question. I'll start with the capital order variability and the pipeline. The pipeline did continue to grow in Q1 as well. We saw good sequential growth in new opportunities that were added to the pipeline. And as you remembered from Q4, the way we look at the health of the pipeline, of course, is in terms of its size, its depth, the diversity, the size of each deal, new customers versus existing customer expansions and then obviously, the maturity, the stage that the deals are in, in that pipeline.

And across all three of these dimensions, the pipeline for 2026 and beyond is robust. We, in particular, are in the late stages of several large new deals that we do expect to close in 2026 and also at the cusp of an emerging refresh opportunity, which we just alluded to in the prepared remarks with existing customers who have now older Tablo fleets and have conveyed an intent to buy replacement units in future quarters and in future years.

So that's a bit about how the pipeline has continued to strengthen, I think, kind of Q4 and into Q1. In terms of the lumpiness of the capital order sales cycle, it is less predictable for us than Tablo utilization. We've talked in the past about the stability and the predictability of the utilization of the consoles once sold and installed. That continues to serve us well. It served us well in Q1. And yet, again, the lumpiness of the capital sales cycle does make it less predictable.

It's really around the close timing, which might be stating the obvious. But beyond that, all the other areas of our business performed exactly as we expected, and we do remain on track with our guidance for the year, because the couple of deals that we saw slip out of the quarter are expected to close here in the Q2 through Q4 time frame to answer that part of your question, which, again, gives us a lot of confidence in the guidance range in addition to a couple of new tailwinds that we will be coming into here later in Q2 and through Q3, Q4 in the form of the next-generation Tablo launch, the kind of the additional firepower our new commercial leader is going to bring to our organization. So all of those things kind of make us very bullish about executing Q2 through Q4 here.

Got you. Maybe just a second one for me. There's a lot to unpack here, but just on a more mundane level, help us think through the quarterly phasing, the quarterly flow. I mean, just, it sounds like it's going to be a more back half loaded year based on your comments or at least what we should assume that today for the moment. It could happen sooner, some of those delayed orders, for example.

But the second quarter, I mean, does the second quarter as opposed to stepping up like it did sequentially the way it did last year. Is it flat with the first quarter or down? And do we, since you're holding guidance constant, if we take the midpoint of your $125 million, $130 million range, do we evenly step it up in the third, fourth quarter? And again, last year, both were around $29 million. I mean, are these going to be roughly equal quarters and whatever the remainder is to get to the midpoint of the guide? Help us think through the phasing.

Sure. Renee, do you want to take that one?

Sure. Rick, I'm happy to give some color here. As we sit here today with just one quarter in, we've obviously spent a lot of time looking at not only the pipeline, as Leslie sort of mentioned, but of course, all of the factors that roll up into our full year guidance. And I would, at this point in time, we would say that Q2 would sort of be a modest step up. And then as we indicated on the call, the Q3 and Q4, of course, we will see the larger percentage of the growth.

Whether or not it's, I don't think it's something that we would expect to see flat Q3 to Q4, you might continue to see some step-up, right? It will be, again, based on the timing of the close of these capital orders, will really dictate that and pull through. But 70% of our revenue is coming from the consumable and service and other, that part we expect to see stable and in the range of the 5% to 9% growth that we're expecting for the top line would certainly be across all of those categories.

So just to sum it up, a modest step-up in the second quarter. And it's not like you're saying all of the remainder, if you get to, just again, I'm focused on the midpoint of the guide. It's not like it is all in the fourth quarter. You'll see sequential step-up in each quarter.

Correct. I think that's a good way to think about it.

The next question comes from the line of Colin Clark with TD Cowen.

First, on the delayed orders in the first quarter, I'm curious, you talked about having several large orders in the pipeline expected to get landed in the 2Q to 4Q period. What's driving your confidence there? What about those orders in size and scale and the stage of that process is driving the reiteration of guidance here?

Sure. Yes, I'm happy to take that. Well, I have had the opportunity to remain extremely close to all of our largest deals and forecast for '26. And to answer your question more specifically, we would, first and foremost, look at the staging of those deals. We've talked in the past, maybe not recently, but we've talked in the past about the stages of our sales process. And so, we look at how many of those deals are in the later stages of the pipeline.

And then we have had enough history here and now have the ability to use some historical data to inform the probability of close between, let's say, Q2, Q3, Q4. And so, the confidence to answer your question, is informed by the data that we have about where these customers are, and these are both new customers and also existing customers that based on their financial and clinical results with Tablo are choosing to expand into new facilities, informed by that probability of close data.

We feel we have a pretty good understanding and a good handle on which of those deals is likely to land in Q2, Q3 and Q4. So that's really what's underlying our expectations. Then in addition to, not to make this answer longer than it needs to be. But in addition to that, I just alluded to this next-generation Tablo, which we will be in full launch mode in the second half of the year. And we do expect next-gen to be a demand driver as hospitals and health systems continue to tell us that cybersecurity is at or very near the top of their priority list.

And so, as we believe we have the only dialysis system in the market to meet these very stringent FDA requirements, we believe that will be a demand driver based on how well this is resonating thus far in our early sales conversations. So, we view that as an incremental tailwind for the second half of the year.

Understood. That's very helpful. I'm curious on the next-gen system, does it have the potential, do you think to accelerate these trade-in time lines as far as replacing older generation Tablos?

That is an excellent question. And the short answer is, yes, I think it could. Yes.

Perfect. One final one for me. Thank you guys for hosting the webinar this afternoon with the dialysis supervisor at Reid Health, which found it really helpful. We were interested in what you said about bidirectional integration of Tablo into the EMR. Can you talk about the functionality that enables and what that does for your revenue recognition when Tablo not only uploads data to the EMR, but operators have the potential to input orders from the EMR to Tablo?

Sure. Well, thank you for listening to the webinar. I appreciate that. And yes, Reid Health has had a lot of very, very positive benefits clinically and financially through in-sourcing in Tablo. To fill other listeners in on this call, what is being alluded to here is a potential future capability for bidirectional data transfer.

Today, what we offer is uniquely one-way data transfer. We are directly integrated with Epic and Cerner and many other EMRs, which again is unique to Tablo. And the way that health systems are using that today is to directly transmit or upload all of the treatment data from Tablo after every treatment up to their EHR. There is an opportunity to add a new feature to our EMR offering in the future, which would allow prescription data or information to be transmitted directly from the EMR to the Tablo.

So, that is something that we're pretty excited about as a future direction and that we have heard, and it sounds like you heard from Reid Health, would deliver quite a bit of value to our customers. When we think about our recurring revenue foundation that Renee alluded to, it's roughly about 70% of our total revenue. Our overarching revenue strategy is to drive the highest possible percentage of our total revenue from recurring revenue sources.

It's visible, it's very predictable. So EMR is an example of a recurring revenue layer that we've added around service and around consumables. And we've had some pretty good early success with selling EMR, both in terms of upfront implementation and recurring maintenance fees annually. Were we to add new features like bidirectional, we would view that as, of course, an incremental revenue opportunity, further fueling the recurring revenue foundation that we enjoy.

We have no further questions at this time. I will now turn the call back over to Leslie Trigg for closing remarks.

Terrific. Thank you to everybody for joining today. I'd like to close by thanking our customers and our team for the difference that they make every day in the lives of dialysis patients. Have a great evening, everyone.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Outset Medical -- I'm sorry, Q4 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I will now turn the conference over to Jim Mazzola, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to our fourth quarter 2025 earnings call. Here with me today are Leslie Trigg, Chair and Chief Executive Officer; and Renee Gaeta, Chief Financial Officer.

We issued a news release after the close of market today, which can be found on the investor pages of outsetmedical.com. This call is being recorded and will be archived on the Investors section of our website.

It is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Outset assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with our business, please refer to Outset's public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports.

Leslie?

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. 2025 was a year of progress and transformation at Outset Medical, a year where we overcame adversity to emerge with a stronger foundation and even deeper capabilities to help hospitals, health systems, post-acute and home providers improve patient care outcomes at lower cost and with less complexity.

During the year, we substantially reduced our cost structure while making significant investments to extend our technology and service leadership. These investments were key to our announcement 2 weeks ago about the FDA clearance of our next-generation Tablo platform. Second, we meaningfully strengthened our team and infused new talent into key leadership roles, in finance, medical affairs and field service.

Third, we recapitalized the company with less debt and new capital to fund Outset through cash flow breakeven and beyond. Fourth, we expanded our base of published evidence, demonstrating the significant clinical, operational and financial benefits that can be achieved by in-sourcing with Outset and Tablo. In particular, the clinical value proposition came into clear focus as our customers documented even more evidence of improved clinical outcomes.

Fifth, we maintained a very high customer satisfaction, or CSAT, score, above 95% for the exceptional customer service we provide. And lastly, we continue to sign new agreements for the in-sourcing of dialysis at new and expansion sites, including at one of the largest national health systems in the country with well over 100 facilities. Tablo is now used at roughly 1,000 acute care sites in the United States.

Turning to our financial results for the year, we announced preliminary fourth quarter revenue last month, which came in at the high end of our revised guidance range. At $119.5 million, revenue grew by 5% over 2024 and sets us up for what we anticipate will be an even stronger growth year in 2026. As we have worked toward greater consistency and predictability in our top line results, we continued our steady 5-year expansion of gross margin to finish the year at 39.6% non-GAAP gross margin. Gross margin exiting the year was well above 40%, which keeps us on a trajectory to our next milestone of 50%.

Moving to our end markets, I am most proud of the progress we made during 2025 strengthening our partnership and presence with acute and post-acute care providers. We began to see vocal champions emerge throughout our customer base because of the clinical and operational benefits that can be achieved by in-sourcing with Outset. The financial benefits have long been understood and remain a key selling point. In 2025, we saw new momentum from nursing leaders sharing their experiences with improved clinical outcomes as well: lower infection rates, reduced length of stay and higher nurse satisfaction with the dialysis service line that is in-sourced with Outset.

Operationally, from gross margin expansion to product innovation to operating expense performance, we made meaningful progress in 2025 and took strides on our path to profitability. In the past year, we reduced cash usage by $70 million, increased gross margin by more than 500 basis points and continued to narrow our operating loss.

Additionally, we made investments in innovation to further extend our technology lead and, just 2 weeks ago, received FDA clearance for the next-generation Tablo platform. This new platform is the first dialysis system cleared under the FDA's 2025 cybersecurity requirements and includes hardware and software enhancements that improve performance and system reliability as well.

A 2025 survey of U.S. health care IT and cybersecurity professionals published in the HIPAA Journal found that 93% of health care organizations had experienced at least 1 cyberattack in the past 12 months, with an average of 43 attacks per organization annually. Cyber attacks slow patient care, reduce the hospital capacity and create staffing strain. More than 70% of hospitals experiencing a significant cyber attack report direct patient care disruption, which is why health systems now treat cybersecurity as a critical patient safety issue.

A dialysis system that meets FDA's most stringent cybersecurity requirements helps protect hospitals by reducing the risk of compromises, limiting the risk of spread and safeguarding patients. We view Tablo's secure by design architecture, multilayer authentication and resilience against unauthorized access, as well as its compliance with FDA's rigorous cybersecurity standards as a significant new competitive advantage. It provides yet another compelling value proposition, on top of cost savings and on top of clinical outcomes improvement, that we believe will be recognized by health systems amid ever-increasing concerns over cybersecurity, continuity of care and patient safety. This clearance is the 10th 510(k) for Outset, building on our track record of innovation in the dialysis market.

The next-generation Tablo is also a new foundation from which we intend to innovate further with future enhancements planned, to widen and deepen the moat we have already established in the acute and home market. We are excited for the planned launch toward the end of the second quarter.

Turning to our commercial organization, our team executed well in the fourth quarter against many of the largest opportunities in our pipeline. We closed the deal that had shifted out of the third quarter and made meaningful progress on several others. I am proud of the fourth quarter execution our sales leadership team demonstrated and optimistic about the additional strides we can take in 2026. Our strong pipeline is reflective of the benefits that can be achieved by in-sourcing dialysis with Outset's proven technology, expert know-how and exceptional service. And now together with the next-generation Tablo launching this year and a rich road map of additional innovations to follow, we expect to drive growth for many years to come.

With that, I'll turn it over to Renee for more detail on the year and our guidance for 2026.

Thank you, Leslie, and good afternoon, everyone. Revenue in the fourth quarter of $28.9 million consisted of $19.9 million in product revenue, which, as expected, was below $21 million in the fourth quarter of last year. The components of product revenue include console sales, which grew 11% to $6.4 million and consumable sales of $13.5 million. As we indicated last quarter, consumable sales were lower in the quarter compared to the fourth quarter of last year due to order timing. Consumable revenue did rebound sequentially, just as we had anticipated on last quarter's call based on our Tablo utilization data, growing nearly 11% over the third quarter.

We were very active during the quarter to tighten up our forecasting methodology for treatments, which now includes closer collaboration with our largest customers on their ordering patterns. I believe we have made improvements to better predict treatment demand, and we will continue to monitor Tablo utilization and ordering [indiscernible] as we hone our approach.

Service and other revenue of $9 million grew 6% from $8.5 million in the prior year period. Recurring revenue from the sale of Tablo consumables and service was $22.5 million, again growing sequentially, as we anticipated on last quarter's call, but down from the fourth quarter of 2024 due to customer ordering patterns that resulted in a strong fourth quarter in the prior year.

Next, I will walk through our gross margin and operating expenses for the quarter. Please refer to the tables in today's earnings release for a reconciliation of GAAP to non-GAAP measures.

Non-GAAP gross margin expanded more than 500 basis points from last year, reaching 42.9% for the quarter, even with another 130 basis point headwind from the under-absorption of manufacturing overhead. Excluding the manufacturing headwind, we would have seen non-GAAP gross margin closer to the mid-40% range. Product gross margin increased 640 basis points year-over-year to 50.7% from 44.3% in the fourth quarter of 2024. This marks the first time product gross margin has exceeded 50%. Service and other gross margin was 25.6%, growing 470 basis points from 20.9% in the fourth quarter of 2024. This progress keeps us right on our path to the next milestone of 50%.

Moving to operating expenses. Non-GAAP operating expenses declined nearly 4% to $25.7 million, compared to $26.6 million in the fourth quarter of 2024. Non-GAAP operating loss was $13.3 million, 14% below the operating loss of $15.5 million in the prior year period. Non-GAAP net loss of $15 million was 22% lower than $19.3 million in the fourth quarter of 2024. These positive results reflect our drive to profitability.

Moving to our balance sheet, we ended the quarter with $173 million in cash, cash equivalents, short-term investments and restricted cash. We used approximately $9 million in cash during the quarter.

To close out the full year of 2025, we reported revenue of $119.5 million, a 5% increase over 2024. Product revenue was $84.8 million, a 5% increase over $81 million in 2024. Service and other revenue was $34.7 million, a 6% increase over $32.7 million in 2024. And recurring revenue was $88.7 million, also a 6% increase over $83.9 million in 2024.

Non-GAAP gross margin for the year increased 400 basis points to 39.6%, or 41.1% excluding the impact of manufacturing under-absorption. For the full year, the under-absorption headwind was 150 basis points, right on our forecast, and will have a diminishing effect in 2026.

Non-GAAP operating expenses in 2025 were $97.8 million, a 19% reduction from $120.7 million in 2024. Non-GAAP net loss was $65.4 million, a 31% decline compared to $94.8 million in 2024.

Turning to our guidance for 2026, we expect revenue to be in the range of $125 million to $130 million, a 5% to 9% increase over 2025. In terms of revenue timing, we expect the first quarter to be roughly flat to the fourth quarter of 2025 and then stepping up through the rest of the year. For non-GAAP gross margin, we expect to be in the low to mid-40% range. A higher console mix would move gross margin lower in the range just as a higher mix of consumables would move gross margin to the higher end of the range. We expect the manufacturing under-absorption that was a headwind in 2025 to attenuate as we move through 2026.

Finally, we anticipate continued operating leverage this year with operating expense growth at roughly half the rate of expected sales growth. In terms of cash use, we expect Q1 to be our highest cash use quarter for the year due to planned investments in inventory and manufacturing. On a full year basis, the combination of revenue growth, gross margin expansion and expense discipline will enable us to use less cash in 2026 than the $46 million we used in 2025.

With that, I will turn the call back to Leslie for closing comments.

Thanks, Renee. I want to close by reiterating that we operate in 2 large end markets where we remain the clear technology leader. Tablo consoles have performed more than 3 million cumulative treatments. And what is even more astounding is the depth and the breadth of our data repository. There are now more than 8 trillion data points in our cloud platform, which helps fuel our analytics and innovation engines, improves the customer experience and ultimately enhances patient care.

We're gaining scale with significant growth runway ahead through hundreds of master sales and service agreements already in place and a pipeline of new customer opportunities. All of this progress sets a powerful foundation for value creation over the long term. Providers, including many of the largest health systems in the country, are realizing the advantages that in-sourcing with Tablo can deliver. Our team is differentiated by its expertise and an unwavering commitment to our customers and the patients they serve. I expect we will demonstrate that commitment again in 2026 as we drive growth and move ever closer to profitability.

With that, I think we are ready for Q&A. Operator, please open the lines.

[Operator Instructions] One moment for our first question today, which will be coming from the line of Marie Thibault of BTIG.

I wanted to start here with next-gen Tablo. Thanks for the background, the advantage that that system will offer. Can you tell us a little bit about how that might change the markets that you can go after, the types of hospitals you can go after, whether it might change your sales cycle time lines? And any ASP lift that we might see as well from that launch?

Sure. I'm happy to address that. Thanks for the question and hello. Yes. So let me talk a little bit more about that. It's one of my favorite topics right now because we are really proud of the work that went into this and what we believe will be the value that we deliver to hospitals. I myself have talked with so many hospital leaders around cyber, and particularly those that view vendor devices as their biggest vulnerability. They not only have to worry about the security of their own network, but of course, increasingly, all of the different devices that are connected to it. So I think it's more than fair to say that health system executives have an extremely heightened focus on the cyber safety of the medical devices being used in their environment.

So given the fact that we now have the first dialysis system harmonized with FDA's very rigorous cybersecurity standards, I do believe it will help us generate incremental attention and interest among potential customers, I'd say, regardless of size, maybe to hit on one part of your question. I haven't seen a big difference in the level of cybersecurity attention between small, medium or large hospitals. They're all concerned about it, because it's something that they increasingly view through the lens of like fundamental patient safety.

So yes, I do think that this will be a potential tailwind, a potential catalyst for us in 2026 and obviously beyond. I do think that it could, again, very early, we just got the approval a couple of weeks ago, so too early to speculate. But minimally, I think that we will see incremental attention and interest. And I do think that our ability to offer hospitals sort of advanced cyber safeguards will be very positively received.

In terms of the ASP lift, look forward to giving you more specifics on that as we get a little closer to the launch a little bit deeper in the year. We do, I think, philosophically, we have always followed a philosophy around pricing for value. And we believe that value to this upgrade is quite significant. But I'll close by saying stay tuned as we get a little deeper into the year on specifics.

Okay. Very helpful, Leslie. And then a quick follow-up on the sales force and the deal pipeline. Certainly sounds like you've tightened up the process, that you have cleaner visibility into timing and the deals. But can you tell us anything about the stability of the sales force? Was there any attrition post the leadership leaving? And are there any updates on the search for the leader? And anything sort of on how you're viewing the deal pipeline now given the guidance of sequentially flat for first quarter?

Absolutely. Yes. Well, I think as I reflect on Q4, and I'll say, current state, today, we do have an experienced sales leadership team. They did an excellent job at keeping the organization focused on the quarter. I think the results of Q4 reflect that, albeit on a revised guidance range. We did execute at the top of that guidance range. We did see the treatments renormalize. We did see the deal from Q3 that slipped close in Q4. We did see console sales bookings land exactly where we expected them to land in Q4. So all of that was encouraging.

Now as we kind of look forward, Renee and I remain very hands-on inspecting the pipeline and forecasted deals. And we're still operating at a very detailed level. We'll obviously continue vigilant monitoring. But in terms of the stability and focus of the sales organization, I'd say, so far, so good.

We do still have a search underway, which is being done for us by a leading executive search firm. Because we do have a very strong and capable sales leadership team in place today, it is affording us the time to find the best of the best. So we're being very deliberative and to ensure that we have the best cultural and operational fit for the business.

Maybe lastly, I think -- what?

Sorry. I was just saying thank you.

Thank you. I was going to address the third part of your question, which I think was pipeline in Q4 and kind of across 2025. So looking back on the year in full, yes, the pipeline did grow across all the key metrics that we measure, which are the overall size of the pipeline, the average deal size, in particular, deals over $1 million in console value.

And then we also look at does the pipeline look healthy in terms of diversification. And we look at diversification a couple of different ways. One is diversification between new customers who are coming into the pipeline interested in moving from outsourcing to in-sourcing with Outset, and then existing customers who are already in-sourced with Tablo and looking at expansion to new facilities based on the clinical or operational and financial benefits that they've already seen and proven after themselves.

So yes, we do see good diversification between new and existing. We also look at the diversification in terms of hospital size. We see good diversification between kind of the big brand name beachhead health systems that have entered our pipeline, but also medium-sized hospitals and small hospitals.

And I'll maybe take an opportunity just to touch on a point that's adjacent to your question, Marie. When I talk about small hospitals, we're really proud of the impact, albeit early, it's nascent, but the impact that we have had in '25, and we expect to have in '26, with critical access hospitals. These are hospitals that are increasingly looking at standing up new dialysis service lines because dialysis clinics in their local, rural communities have closed. And the patients, therefore, in these rural areas do not always have access to any sort of dialysis care, which obviously is problematic because it is a life-sustaining therapy.

And so we are proud of the partnership that we're starting to effectuate with critical access hospitals to ensure that these rural communities have consistent access to dialysis.

So very long-winded answer, I apologize for that. But in terms of pipeline diversification, across the size and type of the hospitals, I think we are very well balanced, again, across large enterprise solution level deals, again, all the way down to critical access hospitals and sort of everything in between.

And our next question is coming from the line of Joshua Jennings of TD Cowen.

And I want to follow up on Marie's question you answered lastly just on the pipeline diversification. Is there any way to -- or 2 questions within one. One, can you quantify the pipeline growth entering '25 versus entering '26 or vice versa? And then just as we think about the potential to expand your current customer base and just the sales cycle associated with those deals, is there any -- is there a prioritization for the sales force to reduce the sales cycle? Or is the mix appropriate, I think, as you stated? Any strategic attack plan just in terms of the different buckets within the pipeline, thinking about contracting the sales cycle over the next 12 to 24 months?

Yes. Thanks, Josh. Those are all great questions. I'm going to answer them with a little bit of sensitivity from a competitive standpoint, but let me see if I can at least provide some helpful color. So you really hit the nail on the head when you talked about the sales cycle. And that's exactly why diversification in the pipeline around deal size is important and why the diversification between sort of new customers and expansion customers is important. The larger the deal, the longer the sales cycle, and that's not unique to Outset. That's, I think, universal to any capital equipment business. When customers are new to Outset, obviously, you've got a few extra steps around master sales and service agreements and OAs, et cetera, long before you get to a PO. And that always adds some time.

When you're dealing with enterprise solution opportunities, you are talking about 10 hospital conversions, 15, 20 or more hospital conversions, sometimes all at the same time. And those are big decisions. We recognize that those are big, important decisions. And so understandably, those types of deals are going to involve more stakeholders at the health system level. You not only are working with a system CNO. As for example, if it's a 15 or 20-hospital system, you also need to make sure that all other 15 or 20 local level CNOs are on board and enthusiastic. And so that takes a bit more time.

So when we look at the larger enterprise opportunities in our sales cycle, and we've shared this before, it remains, I would say, in that 9 to 12-month plus-plus range, that it can be as long as 1.5 years. At the same time, when we look at deals that are much smaller, that is closed, that can be as little as 3 to 6 months. And so as we think about the design of our pipeline, the management of the pipeline, that's exactly how we're thinking about it, Josh, is really about a balance between sales cycle time.

You also asked me about the sales force focus, and here, I'll be a little bit more artful. But I would say that we are focused on serving any and all hospitals and post-acute facilities that want to kind of control their own destiny when it comes to the clinical, operational and financial benefits of in-sourcing versus outsourcing. With that being said, yes, you're right that if you're thinking about customers who already have a footprint with in-sourcing in Tablo, in the theoretical, that often can have a shorter sales cycle with lower barriers to adoption. But again, I want to stress, we're focused on serving everyone who wants to control their own destiny moving forward for better patient care. Hopefully, that provides a little bit of helpful color.

No, definitely. I mean maybe a little bit too granular, but just any color on or quantification of, I guess, the pipeline ending '26 versus '25?

Yes. We saw about the same amount of growth in the pipeline, as we did between '24 and '25, we saw, again, about the same rate of growth between '25 heading into -- year-end '25 heading into the beginning of -- sorry, year-end '24 and the year-end '25, about the same rate of growth as we did the prior 12 months.

So I continue to be very encouraged about the demand that we're generating. And I think that some of the pipeline -- I know that some of the pipeline expansion more recently has been because of this new clinical value proposition that's been emerging and then published increasingly by our own customers, seeing a reduction in length of stay, a reduction in CLABSI rates, even a reduction in code blues during dialysis treatment. And I have understood from potential customers that has driven, I would say, an incremental wave of interest beyond the financial ROI benefits that have been long understood with in-sourcing with Tablo for a couple of years now.

Great. Just sneaking one more, sorry. Multipart question on the last one. But just thinking on the guide and 5% to 9% revenue growth, any help just thinking about, as we're forecasting, updating our models, console growth versus consumable growth within that range?

Sure, Josh. Happy to step in here. I think as we sat back and thought about the guidance range, we absolutely look at it across the 3 primary components of revenue and the different puts and takes to each of those. So you're right in that our 5% to 9% growth is our -- what we believe is our balanced, best approach for right now for the full year.

And I would believe that -- my position is that you should think about forecasting growth for recurring revenue to be roughly in line with that top line growth. And as you can even see for what we just performed on for 2025 against 2024, we saw very consistent revenue growth in console, consumables and service.

Our next question will be coming from the line of Kendall Au of RBC.

I just had like 2 modeling questions. I know you guys continue to track ahead of expectations on gross margins. Is there any update on the time line to get into that 50% mark? Can you achieve that prior to exiting 2027? And then also, I have a quick question, does your current cash -- is that enough right now for you to reach profitability? Or do you need to raise any more cash before reaching that point?

Sure. Yes, great question. I think as you can see -- on gross margins alone, you can see that year after year we continue to execute against our gross margin, and just last year, had a 500 basis point improvement. So we are continuing to march towards that pathway. And as you've indicated, our goal is 50%. And we just saw that even with just product gross margin for Q4.

We're going to guide for the current year to, as I mentioned, sort of the low to mid-40% range. But we do feel as though that that 50% absolutely is within our planning horizon. I'm just not going to give a formal year to when we're going to achieve that, but we absolutely look forward to doing that and sharing that with everyone at that time.

Specific to cash on the balance sheet, I think as you think about we've got $173 million in cash, cash equivalents and investments, as you've seen just from our performance in this past year, we brought operating cash burn down from $116 million in 2024 down to $46 million in 2025. And as stated on our call, we will look to better improve against that in 2026 as well. And we absolutely believe that we've got sufficient cash on the balance sheet to get us to profitability and beyond.

I really appreciate the color there. And then I have just quick question on capital budget. I was wondering what you're seeing on the hospital capital budget environment right now. Do you feel like it's up year-over-year? And also, what's the state right now? And then also, can you give me a little commentary, I know you talked about having a backlog, is that still -- like can you talk about the size and maybe the scale of that right now for Tablo?

Sure. Yes. Well, on the capital spending front, we are not seeing any material changes at least in the customers that we're calling on are the customers that are in our pipeline, we have not really observed any material changes in their planning or how they're thinking about capital spending for 2026. So nothing systematic or widespread that changes our outlook either near term or long term.

Backlog, yes. That has been an important lever for us in the past. It remains an important lever for us as we move forward over the planning horizon. And I would say we feel very good about where we're entering 2026, and that will continue to be one of the KPIs that we measure ourselves against as we move through the year and into '27.

And our next question is coming from the line of Rick Wise of Stifel.

Leslie, just I want to have some follow-up questions sort of building on a lot of the excellent questions already discussed. On the next-gen Tablo system, it's great to see it, a couple of follow-ups. One, is there an upgrade opportunity here? Like, does your existing installed base upgrade for a nominal fee? Is it a whole new Tablo they would buy? Is there an opportunity to upgrade your entire existing base at a full cost of a new Tablo, whatever that ASP would be? Maybe just help us understand that.

Could you talk a little bit more -- the cyber security topic is obviously compelling alone, but help us understand some of the additional, some of the other new features and capabilities and how that might add to Tablo's luster and ease of use and clinical utility? And then I have a related follow-up question to that.

Okay. Great. Yes. Perfect. Why don't I -- I'll try to address the first part and then we can go to your part two. So on the next gen and the upgrade opportunity, short story long, yes. Our existing installed base customers will have full access to this upgrade. They will be able to upgrade. At the same time, new customers will also have an opportunity to buy new Tablos that already contain, because they've been manufactured in, already contain all of the software, hardware and cyber upgrades that I'm about to elaborate on in 1 second. So yes, this is a full access upgrade both for -- that will be available to the current installed base and also new customers moving forward.

You also talked about or asked about what are some of the details around -- on the cyber front, what does that really mean? Gosh, this could be like an hour-long conference call that I -- a podcast that I'm sure you all would really enjoy, but I will try to keep my answer brief. This was a massive amount of work for our team and took us many, many, many months of technical achievement to reach. But for example, we updated physical network cloud connections with new software and hardware changes. We added many, many, many new security controls. We have -- our software now has round-the-clock cyber monitoring.

In terms of the device performance itself and some of the reliability improvements, those, again, it's new software, a new operating system, new hardware. And how this translates to the customer benefit was something you also asked me about. Well, number one, we're always focused on improving uptime, which in and of itself improves the user experience. And so when you've got device performance enhancements, reliability enhancements, you are improving uptime. The availability of that device, the more the device is available, the better the patient care experience. Patient care can be delivered when it is needed by the patient. And then, of course, the user experience with nurses and biomeds in the hospital will be beneficiaries of the device performance and the reliability improvements as well.

And I think I'll say moving forward, we're not done. We are extremely committed to what I like to call customer-centric innovation. Not inventing things because we can from an engineering standpoint, but inventing things because we've heard them from users. Feedback, ideas. The improvements in this next-gen are a direct example of kind of this customer-centric orientation and very reflective of many of the suggestions and ideas we've gotten directly from our nurse users and others within the acute care and post-acute environment.

Great. And just to build on that, just in the simplest of terms, is -- and you have told us the ASP or whether it's more or less or equal to the current generation of Tablo. But if I assume it's -- there are more features and the cybersecurity is an incremental value and it's higher, what does this all mean for your gross margins once you're fully launched? Is this margin accretive at that point? Is there a manufacturing learning curve? And so it actually depresses them initially as you launch?

Just -- and maybe just related -- sorry to ask such a multipart question, but what's in your guidance at this point? A first or second half guide. And bringing that gross margin question into it, how do we think about the new Tablo impacting margins?

No problem, Rick. This is Renee. I'll help sort of answer some of the gross margin questions and, in particular, how we're thinking about this. So as Leslie mentioned, we're working on the commercial launch strategy and how the Q2 time frame around that where, hopefully, we'll give additional clarity specific to ASPs. But I would say we absolutely think that there is value to product innovation and that this product just continues our innovation pipeline and that customers will see value in that.

Specific to gross margin, you could imagine then that could be a potential tailwind specific to revenue throughout the year, but also gross margins. We've strategically thought about this product launch, this product generation, as Leslie just mentioned, the ability for current customers to upgrade their devices if they so choose, what future manufacturing of devices look like, plus also the units that I have on hand in finished goods at the moment. The functionality, we really thought about this when we were designing this next generation. And the ability to have that flexibility to upgrade, to add the components and, of course, add the software.

So current state within our gross margin guide, we've factored it in, I would say, similar to how you can think about gross margin. Right now, we currently don't expect it to be sort of a big detriment. I know sometimes companies have that when they're switching generations or versions of their device. We think this will be relatively a mild impact. And of course, the more consoles that we do sell, that has a dampening effect on gross margin, as you know, from our history. So in some ways, I'd love to sell -- have a tailwind from this and sell more consoles, have higher top line revenue growth that could dampen in the near term gross margin. But as we thought about it in the current guide, both from a revenue perspective and a gross margin range, we need -- the commercial launch will be sort of late Q2. So it will be back end -- included in our back-end assessment, and let's see how that launch goes and how it rolls through the summer months.

Thank you. That does conclude today's Q&A session. I would like to turn the call back over to Leslie now for closing remarks. Please go ahead.

Great. Thanks to everybody for joining today. I'd like to thank -- close by thanking our customers and our team for the very, very meaningful difference that they make every day in the lives of dialysis patients. I hope you all have a great evening.

Thank you so much for joining today's conference call. This does conclude today's meeting. You may now disconnect.

Hi, everyone. My name is Denise Liu. I am an associate here in health care investment banking at JPMorgan. We're excited to be continuing the Annual Healthcare Conference today with Leslie Trigg, Chair and CEO of Outset Medical. We'll have time for Q&A at the end of the presentation and will also be joined by Renee Gaeta, CFO; and Jim Mazzola, VP, Corporate Communications and IR. So with that, I will turn it over to Leslie.

Thanks for being here, and thanks again to JPMorgan for including us in the conference. Really appreciate it. For those of you that may not be as familiar with Outset, we're a California-based med tech company focused on enabling dialysis care that meaningfully improves patient outcomes while dramatically lowering the cost and also the complexity of care. What I'd love you to think about and hopefully take away from today are really 5 kind of key facts about where we are today and what our future looks like. Fact number one, we are now operating at scale with a very large footprint in the $2.5 billion acute and post-acute market. Nearly -- well, not nearly over 1,000 hospitals now are using Tablo in the inpatient environment on a daily basis to deliver about 1 million treatments a year. In total, Tablo has been used to deliver well over 3.5 million treatments here in the U.S.

We also have an emerging presence in the $8.9 billion home market, which has been in want of a better technology solution for quite some time, and I'll talk about that a little bit in a little bit.

The second thing I think that's important to maybe touch on is what's changed since the time of our IPO in 2020. And I think perhaps the biggest change is that we've really moved from a device to a solution. When we first entered the market in 2019, we had a great device, and it offered many firsts to the market, and I'll go into that in a second. I think where we've evolved to now is a full kind of enterprise-level dialysis solution through data analytics, through EMR connectivity through exceptional field service and support in ways that really kind of build on and amplify the impact of the technology. So I'll talk a little bit about that more as well.

These benefits and the moats that we've continued to add around the core device have resulted in, I think, an enviable business model, one in which 70% of our total revenue is actually derived from recurring revenue. And lastly, we entered 2026 with a very, very strong balance sheet, one that is designed to take the company to cash flow breakeven and beyond. So we'll touch on that a little bit, too. So this is sort of a company in a nutshell where we are today and propelling us forward. I want to talk mostly about the future. I'm going to take a quick step back and talk a little bit about the landscape in the market for those of you that may not know as much about it. The most important thing, a couple of things for you to know about the dialysis space. It is one of the largest sectors of our health care system. It is one of the most expensive and oddly because of #1 and #2, it's surprising, it's the least changed. You would have thought that given its size and given its expense that we would have seen more innovation here, both in terms of equipment and the service model, but that's actually not the case. As we sit here today, about 90 million, 90 million dialysis treatments are delivered every single year. That's for people doing the math, almost 250,000 treatments that were done just today as we've been sitting here at JPMorgan or standing here at JPMorgan.

Now that all comes at a great cost. About $71 billion. This is U.S. only. Medicare is picking up about $55 billion of that tab. And that is about 5% of the entire Medicare budget being spent on about 1% of the population. Unfortunately, this is a problem, cost, complexity, scale that is getting bigger, not smaller, as we look forward here into the coming 5 years. So where is all this dialysis happening? Again, I want to set the stage for you.

So dialysis is delivered in 3 settings, 3 markets, if you will, submarkets. Outset is focused on 2 of those 3 submarkets. But the 3 settings of care are: number one, in patient dialysis. This is dialysis has delivered inside the hospital or an LTAC or a rehab, it's delivered in the ICU. It's delivered outside the ICU and the floors of the hospital. That's inpatient dialysis. The second setting of care submarket is the chronic outpatient dialysis market. That's dialysis that takes place in any one of 7,000-plus dialysis clinics here in the U.S. And the third market is dialysis that's actually delivered in the home. We are focused, as I just said, in -- on 2 of the 3 markets. We are very focused on penetrating the inpatient market, in the hospitals and the post-acute health care facilities and home. And I'll talk more about how those things kind of play together and they're interconnected in a second.

So I'll start with in patient dialysis, market #1. Market #1 is about 85-ish percent of our revenue every year. How exactly dialysis is delivered in the inpatient setting has also remained unchanged for quite some time. Most hospitals outsource the dialysis. They outsource it to a separate third-party company and when patients need dialysis, whether it's in the ICU or outside the ICU, the hospital will call one of these third-party companies and one of their nurses will come on site, set up the machine, get the patient on treatment, off treatment and leave. That's the old model. There are some challenges with this model, and the first challenge is cost. And I want to explain what the cost conundrum is. Dialysis is completely unreimbursed in the hospital. If you remember one thing from this whole 30 minutes, please remember, dialysis is unreimbursed in the hospital. It is a pure-play cost center for any hospital in the country. What do I really mean by that? For example, if somebody comes in for a mitral valve replacement, the hospital is going to get paid on the DRG associated with the mitral valve replacement. If that is a chronic dialysis patient, for example, they need dialysis while they're in the hospital for this mitral valve replacement, the hospital will eat the cost of that dialysis. The hospital will be paying, for example, DaVita to have DaVita's nurse come on site and deliver the dialysis, but the hospital will not get reimbursed for that. So you can see how this might add up. And some of the statistics when an inpatient admission involves dialysis there's a 2x higher ICU admission rate. There is a 5-day longer length of stay. Overall, the cost of an admission that involves dialysis is about 2.5x higher and that in dollar terms is anywhere from $5,000 to $25,000 loss per hospital admission. Headline, it's expensive because it's not reimbursed.

I think headline number 2, as to why this has become so cumbersome and so costly, is the service model because hospitals typically have outsourced this to a third-party service provider they are no longer in control of their cost structure. A couple of unintended consequences on the quality front as well with this model, again, of a third party coming on site and providing care. I mentioned an average length of stay that's about 5 days longer. There's a mortality risk when you outsource your dialysis. There's a higher infection rate. CLABSIs are catheter-based bloodstream infections. CLABSI for short. CLABSIs cost up to $50,000 for 1 infection. We have customers that have now published data where their CLABSI infection rate is 35% lower after they have changed their service model in-sourced dialysis due to Tablo. So this is a big deal, of course, in terms of quality metrics, but also cost and also from a compliance standpoint. When joint commission comes into hospitals, usually one of the first places they will look is dialysis because the incidence of citations from joint commission from a compliance standpoint is so high, most hospitals really struggle to stay in compliance with their dialysis program because they don't control it. They have turned over compliance to a third party. So setting up the problem statement, we obviously see a better way forward that we have helped over 1,000 different hospitals implement. It starts with the technology and it goes from there. I'll start with the device, and I want to talk a little bit about this in-sourcing service model. When we first introduced Tablo in 2019, there were a lot of firsts associated with this device. Tablo was the first to purify water on demand. Most dialysis machines require a massive water treatment room, 1,000, 2,000 square -- size of this room, water treatment room that has to sit behind the treatment room so that the machine can operate. We designed Tablo. It took us 7 years to tame the technology beast to do this, but we effectively miniaturize the water -- it was kind of water treatment room in a box. We were the first to do that. Tablo is the first device to make the dialysate on demand. That's the solution, the dialysis solution that's used during dialysis. We were the first to make the dialysate in real time kind of streaming dialysate while the patient was dialyzing. We were the first to transmit all of the data about 3 million data points after every treatment, every Tablo straight up to the cloud first, and then we further innovated into integration with Epic, with Cerner and many other EHR customers. So we do have a fairly long now track record of leading this industry and innovation and we're not done. And so this has evolved now over the last couple of years to where we are today, which is really from device to a comprehensive enterprise dialysis solution, Tablo is still there. It is the center of the universe, if you will, but it's now complemented by a whole suite of value and products for acute and home providers.

I'll start with the data. I mentioned about 3 million data points transmitted after every treatment up to the hospitals EHR. It is also transmitted to our cloud. So as we sit here today, we have over 3.5 trillion with AT data points in our cloud. that gives us a tremendous opportunity to add clinical value back to our customer base. I have never met a Chief Nursing Officer who doesn't want to know what his or her data looks like, what -- how well are we treating patients. How do we benchmark? How do we compare to other hospitals in our IDN or other hospitals in our region? Where are we strong? Where are we weak? How do we standardize best practices, how do we improve? We have the capability through an advanced kind of clinical data analytics dashboard to actually give hospitals the tools to see how they're doing, an opportunity that they do not have with the outsourced model when somebody else owns that care. So we're putting data analytics tools that give them the opportunity to really control their own destiny, not only financially but also clinically.

Second, EMR interoperability. We were the first to integrate with Epic, with Cerner and with many other EHRs, which just amplifies the clinical value because now the hospitals can connect even more dots with the outcomes from their dialysis treatments with the broader patient outcomes across the hospital system, which makes that even more valuable.

Switching gears kind of over on the right here, since we have now helped more than 1,000 hospitals in-source, we kind of know what we're doing. We have done this many, many, many times. And so we've harnessed all of that kind of consultative know-how into a proprietary playbook and program where we come in upfront, and we can help the Chief Nursing Officer, the VP of the nursing leaders manage that change from we've been outsourced for 10 or 20 years to in-sourcing. How do we do that? So we've really become kind of consultants and experts in that process through a formalized program that we call implementation services. We even offer temporary staffing solutions as hospitals are kind of making the change, which has been very, very helpful for them.

And lastly, we are extremely proud of the service and support that we give our customers. We have maintained a CSAT score of 95% even as we have scaled and even as we've grown, we're continuing to build on that and here comes the data back into the value fold with trillions of data points in the cloud we have and are leveraging the opportunity through AI and machine learning to move service from -- for most companies kind of react and repair to predict and prevent in the name of kind of uptime and patient access. So we're really excited about our initiatives in this area. So as I said, this is probably the biggest thing that's changed since the time of the IPO. We were very proud of our device. And now we're very proud of kind of the suite of solutions that we offer our customers, both new and existing customers who are expanding. Perhaps the most compelling case I can make for the solution that we've built are the results and the results that our customers have told us about. These are some examples of customers on the left who have published their results. I'll hit some of the highlights for one customer, a 36% reduction in their ICU length of stay. A 75% reduction in those CLABSI bloodstream infections that I alluded to earlier, a 52% cost reduction per treatment hour. A 65% reduction in supply and labor costs, a 35% decrease in therapy start delays. Okay? How are they achieving all this? Is it the machine? I get asked this question all the time. How does Tablo do this? So I want to be very clear about our role in this and Tablo's role in it. We are the tool. We are the enabling technology, what are we enabling? A service model change. And so when a hospital that has been outsourcing the care, decides to in-source with Outset, Tablo enables them to do that because it is -- it offers a lot of clinical flexibility, simplicity and automation that really allows the hospital for the first time ever to use their own nurses. They can use their own team or hire dialysis nurses to work for the health system, Advent, for example, where they control their own destiny. They control the care quality, they control how much it's costing them. They control the operating efficiency. So the service model change is what is enabled by the technology, which then results in the improvements that you see here. So we're very, very proud of being a part of these success stories. And these success stories are not one of one. When you look at our commercial success, we now are being used by all 10 of the largest 10 sub-acute again, LTAC rehab providers in this country. We are being used on a daily basis by all 8 of the largest 8 acute providers in this country. And as I mentioned, now over 1,000 sites and facilities using Tablo, 1 million treatments annually and over 3 million treatments cumulatively. We have also trained thousands and thousands and thousands of nurses and physicians, which is also helping to kind of create a future flywheel effect for commercial adoption with a growing evidence base. We now have over 70 abstracts, over 15 full manuscripts covering the financial, the clinical and the operational benefits of in-sourcing with Outset and with Tablo.

So I'm going to pause and go over to the second market. That's acute, as I said, about 85% of our revenue. The other market segment that we're really excited about and focused on is home. So I'll do a little bit of a stage setting here as well. As some of you may know, the home market has always had tremendous promise and tremendous opportunity. It remains significantly underpenetrated for a couple of very specific reasons. The first one on the left there is financial. With the incumbent device that was first cleared -- originally cleared by the FDA for home use, that technology required patients to do dialysis more frequently at home. In the dialysis clinic, that middle segment that we're not focused on patients going to dialysis clinics, they go 3 times a week. Accordingly, and not surprisingly, Medicare pays for 3 times a week. With the incumbent technology that required patients to dialyze more frequently, more than 3 times a week. And so you had a mismatch between what the providers are getting paid for and what the providers are having to pay for the incumbent device at home. We looked to close that gap, and we did. Other barriers include physician education, patient education, and that actually is coming with time, and we'll continue to, I think, build. And lastly, we, for many, many, many years, had 1 device that was cleared in 2005, and it was really the only device for home hemo that was available to patients. And while it was in advance in its day, didn't necessarily offer ease of use and ease of training in a way that was modern as time were on. And so we look to close that gap as well. So here's sort of a picture, literally a picture of Tablo, kind of the more of the modern era technology versus the incumbent era. We did close that gap, that mismatch between reimbursement and treatments and designed a technology that can deliver the clinical therapy the patients need 3 times a week at the home. So that treatment reimbursement mismatch has been erased with Tablo. We did eliminate the ease-of-use burden of the incumbent technology. Our training time, as you can see, is a fraction of the measured training time with the incumbent device.

And lastly, something I haven't talked about, which is really, really important in home. With the incumbent device, the patient was required to make the dialysate, that dialysis solution in advance of every treatment. That almost becomes a full-time job. You can see 16 to almost 30 hours just preparing for dialysis. And then you've got to do 5 or 6 treatments a week that are 3 hours in duration. It is a full-time job. And it kind of raises the purported benefit of home, which is getting your time back, right? It's empowering to be at home, and you get to decide which you don't get to decide in a dialysis clinic, what days, what times you want to dialyze, you do get to do that at home, which gives you the opportunity to kind of design your life around dialysis versus the inverse of that. But with so many hours spent preparing for dialysis and then dialyzing it kind of raises that benefit. And I think the most important thing, something that we're most proud about on the home side, we have given patients their time back because we designed the system to instantaneously start purifying the water and making the dialysate in real time. There is no -- effectively no preparation when the patient is ready to dialyze, Tablo is ready to dialyze them. So a lot of gap closing, I think, benefits from a patient standpoint on the home side that we feel very confident we'll continue to result in not only greater adoption of home but longer retention at home. One of the big challenges with the incumbent device was retention. The patients often struggle to kind of even make it to 90 days without dropping back into the clinic environment. We have proven now over the last couple of years, an industry-leading retention rate of well over 90% retention at 90 days, which doesn't sound like a very long time. But interestingly, the majority of the dropout actually happens at home in the first 90 days. So we are very proud of our leading indicator, well over 90% retention at 90 days and also at a year. Our mean patient time in the home is now about 1.5 years. One of our first patients who went on Tablo in the home 5 years ago is still using Tablo in the home today. So that's the metric that we're the most proud of. And those are our most important patients that we serve.

So I'll -- I'm running out of time here, but I do want to touch on a little bit on the business model and how does this all work for Outset. And so we do sell the consoles, and then we have a recurring revenue stream in the acute at about $20,000 a year. And in the home, about $15,000 a year these kind of annuity revenue streams kind of flowing out of each console that's sold. In the beginning, our recurring revenue was driven really only by -- I mean, no complaints, but mostly out of consumables because there are disposables that have to be used for every treatment. And our service revenue, I mentioned we have a CSAT score of 95 and we have a very, very, very high attach rate for service, annual service renewals, which drives a very meaningful actually component of our revenue coming out of service revenue. And then over time, we've built on this. And this is a big part of our strategy is to build incremental layers of recurring revenue around the foundation. For example, there are specialized types of software that have new features and new functions that we charge more for. We have EMR subscription style revenue coming out now. We have, as I mentioned, advanced data analytics that have a subscription model attached to it and professional services that have incremental layers of revenue associated with it as well. So we see a lot of growth potential for recurring revenue in general, building on this strong foundation of about 70% of total revenue. I think the way we view our revenue strategy is from a visibility and predictability standpoint, we want the highest percentage of our total revenue to be coming from that sort of very predictable and visible recurring revenue and then console sales on top of that is the sort of the way we think about our business.

And speaking about financials, I'll talk a little bit about the 2026 setup. We did close 2025 at $119.5 million. Again, I just touched on about 70% of that was recurring revenue for us in 2025. We used less than $50 million in cash last year. We are extremely focused as an organization on 2 financial goals beyond high revenue growth, one being gross margin expansion and the other being getting to profitability. This under $50 million in 2025 was a very meaningful step down in cash usage from prior year. So we're really pleased with the progress there. And then we enter, as I mentioned, '26 from a very strong cash position with a strong balance sheet, fueled by $173 million in cash as we look forward.

I'll close again with an emphasis on why we are really here, which fundamentally, and I think why we're all here at JPMorgan no matter what your business, your first mission is patient-centric. And from day 1, every single joiner of Outset, I think, is truly fueled by ensuring that we give patients back their time, their integrity, their agency, their control and their ability to lead the life that they want to lead, whether that's in the hospital, coming out of the hospital post-acute or at home. And so we are determined to make sure that what Outset is really known for when the history books are written, is as a company that truly disrupted an industry that had not changed in 40 years, and we've got a pretty good start in doing so. So thanks again for everybody being here, and we'll let you ask some questions or audience questions. Thank you.

Thank you. I would love to kick off the questions. And then if anyone else has, please just raise your hand, and we have a microphone to pass around. Thinking about the 2 markets, so the acute versus the larger at home, how would you say that investors should think about your focus on these 2 markets.

Do you want to take that?

Sure. Yes, I'm happy to. I think ultimately, if you look at our financials in most recent years in 2025, we've definitely focused more on the acute side of the market, the sort of 80% to 85% of our total revenue coming from that segment. We just see a tremendous opportunity there to really change the standard of care and hit a lot of patients very quickly.

On the home side, that market is still open to us. It's a little bit further down the pathway of really pushing, I would say, down on the gas pedal there. It's about 15% of our revenue. Part of that is being very strategic with regards to where we're putting the investment dollars. As Leslie just mentioned, we're very mindful of cash burn, profitability, gross margin and as anyone can appreciate on the acute side, there's better pricing power for us, more utilization of the devices on a daily basis versus the home segment has more pricing pressure and, of course, is used on a patient one-to-one basis. So we've strategically decided to focus more on the acute for now, but not leaving home behind.

I was just wondering about the growth, historical growth, projected growth, if you want to discuss that for each of those 2 segments, the acute and home setting.

Market growth or outsets growth or both. Market growth?

Market...

Yes. Yes. Sure. I'm happy to address that. Actually, acute -- so again, I'm going to break this into kind of segments where you've seen the lowest growth on an annualized basis market is in the market segment that we're not focused on, that's in center. In the dialysis clinics. That's been flat to actually declining due to what I've heard the dialysis organizations report as higher mortality over the last couple of years. So that's that's kind of been 0 to negative growth, if you will.

Acutes over the last, probably, it's been very consistent really over the last 10 years, typically has grown somewhere between 5% and 7% in terms of top line kind of patient census growth. And I had this on a slide, but I didn't underscore it probably properly. That growth is coming from incident patients, more patients starting dialysis and most patients unfortunately, don't really get a lot of upstream diagnosis that they have chronic kidney disease that they have kidney failure. They kind of crash into dialysis, and they will start in the hospital and then go downstream from there. So that continues to fuel growth, unfortunately. And then you've got about 800,000 annual admissions, chronic dialysis patient admissions. The chronic dialysis patient population has actually continued to grow as well for a good reason, which is actually longer life. And we've been asked a lot about GLP-1s. And we see so far that GLP-1s are actually having a positive effect because the #1 cause of death in the kidney population, the dialysis population is actually not kidney disease, it's cardiovascular mortality. And so there is a lot of sentiment, if you were to talk to nephrologists that GLP-1s may actually see kind of the prevalent population actually continuing to grow. Lastly, I would say the home growth has been in the low single digits, and that's across both home hemo, which is what we do and also peritoneal dialysis, which is through the peritoneum, and that's been somewhere in the 5% range, those therapies combined together. .

And that 5% to 7% in the hospital setting, are you gaining share? Are you growing at that rate or faster?

We are. Yes, in the acute setting we are. Yes.

I'd like to follow that question up with -- as you think about the landscape and competitors how do you compare now vis-a-vis against other products or service providers?

Yes. I would love to talk about that. So as I mentioned, I think in the beginning, we were very proud of the engineering behind the device. Still today, we are the only device in one integrated system that does purify water and make the dialysis demand and automates and simplifies and sends all the data to the cloud, we're still kind of first and best-in-class there. But we don't take that for granted. And I want to make sure we not only protect the moat, we extend it further. The ways in which we have moved to do that is really, again, kind of utilizing this proprietary know-how that you can really only acquire by helping 1,000 hospitals in-source and really understanding all of the ins and outs of that and how to make it a smooth experience for the nursing leaders, I think that's perhaps our most important part of our IP or really trade secret know-how which really sets us apart from other companies perhaps that haven't even started to commercialize yet. That's one.

And then two, I think we first made this investment in data analytics and EMR integration in 2015. We've done plenty of things wrong. That's probably one call that we got right was making sure that we were way far ahead. And I think we have a very material lead now in using AI and machine learning overused words, not only to deliver clinical insights for customers like I talked about, but fueling our efficiency on the service side. There is no valve sensor filter inside of Tablo that we are not constantly getting data back on every treatment every day, and that really helps us on the R&D side, continue to improve the device experience performance, et cetera, for the customers as well.

And that innovation fueling the R&D side and that, I guess, positive feedback loop with all of the data, I assume it's probably one of the drivers of top line growth going forward, but I'd love to just hear any more commentary about what the key drivers would be in 2026.

Sure. Well, I think as we think about customers we have and then customers that don't know it yet, but we will have them. They just don't know yet. But -- so because I think we are so broadly contracted now, we have a huge expansion opportunity. Our longest tenured customer, just to kind of frame it up for you all, we're probably about in about half of their hospitals. And that's our longest tenure customer. And so all of these contracts and relationships that have been formed over the intervening years, we're at varying levels of penetration as low as kind of high single digits, low double digits. So we have a huge greenfield opportunity just within our existing customer base. And the advantage that we have with current customers is they know their data, they know their results. We've already got a signed master sales and service agreement. We've already got relationships. And so that I think that tends to have a shorter sales cycle.

And then we have all the greenfield opportunities. Tablo is being used in roughly probably the 1/3, roughly 30% of the largest regional IDNs. So we have a tremendous amount of greenfield opportunity there. And so both new customers and expansion customers are a big part of our growth strategy for 2026.

When you say 1,000 sites, do you mean one device or unit per that site.

No.

So what's your installed base? Is that something that you can disclose.

I'll let Renee comment on installed base. But let me just frame this up for you. So we are talking about facilities, not customer. We have hundreds of customers, but the number that we were citing as a facility number. So it really -- it depends. It really depends on the hospital's volume. I'll give you an example without naming names. We signed a large -- it was a large volume hospital contract in Q4. For example, they purchased -- it was 14 or 15 Tablos. If you have a smaller like a critical access hospital, that critical access hospital in a rural location might be purchasing 3 Tablos, just to give you a frame of reference. So very large, I'd call it kind of 14 to 18 Tablos per hospital small, probably sub-5 consoles.

Yes. And from an installed base perspective, our last reported number was around 6,000 total devices, and you can think about that as again, sort of 80% to 85% in the acute, so 4,500 and then 1,500 in the home market.

Perhaps just one last question from me and deep diving a little bit more into the financials. So outside -- Outset, sorry, has made great progress expanding gross margin since its IPO. I think from the mid-negative 30s and now positive high 30s. What do you see as the steady-state margin going in the future?

Yes, it's a great question. I think over time, what we've done is we've really attacked the revenue stream -- the different revenue streams and those cost components. And so what -- what has resulted from us, as you appropriately mentioned, going from negative 30% when the company went public to now being in the high 30s, which was our guidance range for 2025. You've seen that we've attacked the console first, the hardware first, the console, the cart, then the cartridge. We fixed and expanded our manufacturing to get scale into that. And we've seen some great improvements there. Our next area of tech is really on the service side, as Leslie mentioned, our cost to serve but also continuing to optimize within our structure across all of our gross margin components, but how do we continue to drive that. Our next milestone for us is 50% company-wide gross margin, but that's not the end. That is just our next milestone, and we know that we can go above and beyond that.

That sounds great. Thank you so much for a wonderful presentation and also just thank you to Outset Medical, the entire team for that you do.

Thank you.

Thank you, everybody, for coming. Thank you.

Good day, and thank you for standing by. Welcome to the Outset Medical Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jim Mazzola, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and welcome to our third quarter 2025 earnings call. Here with me today, as always, are Leslie Trigg, Chair and Chief Executive Officer; and Renee Gaeta, Chief Financial Officer. We issued a news release after the close of market today, which can be found on the Investor pages of outsetmedical.com. This call is being recorded and will be archived on the Investors section of our website. It is our intent that all forward-looking statements made during today's call be protected under the Private Securities Litigation Reform Act of 1995.

These statements relate to expectations or predictions of future events are based on our current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied. Outset assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of Outset's public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports. Leslie?

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. Before we get into the details of the quarter and our revised revenue guidance, I'd like to begin with a few key takeaways. First, while we've made significant progress transforming our sales process and strengthening our team, our third quarter results show that there's still work ahead. Several large opportunities that remain in the final stages of our sales process were forecasted for the third and fourth quarters, and we now expect them to close over the fourth quarter and into 2026. This is a shift in timing. [Technical Difficulty] Can you hear...

We can, sir. If you want to just ask Leslie start with her section, sir, we heard your portion and the line cut out when Leslie started. [Technical Difficulty] Ladies and gentlemen, sorry for the inconvenience and the technical difficulties, but I would now like to let you know that our conference will be resuming. Leslie, please go ahead, ma'am.

Thank you. As I say third time is the charm or I hope the third time is the charm. We'll see. Thanks for your patience, everybody, and thanks again for joining us. Before I get into the details of the quarter and our revised revenue guidance, I'd like to begin with a few key takeaways.

First, while we've made significant progress transforming our sales process and strengthening our team, our third quarter results show that there's still work ahead. Several large opportunities that remain in the final stages of our sales process were forecasted for the third and fourth quarters, and we now expect them to close over the fourth quarter and into 2026. This is a shift in timing, not in our expectations for closing these significant in-sourcing opportunities with large nationally recognized health systems.

As we've shifted towards selling enterprise-wide in-sourcing, we are managing very large opportunities that often span dozens of hospitals within a large health system. For example, an opportunity we had forecasted to close in the third quarter required approvals from the executive leadership of more than a dozen different hospitals after approval at the corporate level. We need to, and I fully expect we will better anticipate these deal dynamics going forward.

We continue to make good progress on this particular opportunity, which we expect to realize via multiple orders spanning the remainder of the fourth quarter and into next year. Second, hospital demand continues to grow as a result of the clinical, operational and financial benefits that can be achieved by in-sourcing dialysis with Outset's proven technology, expert know-how and exceptional service.

We continue to see clear evidence that acute customer demand for in-sourcing with Tablo is growing, and we expect this will support growth for many years to come. Tablo console sales increased 8% in the third quarter. Our pipeline grew meaningfully over last year, and the average size of our sales opportunities increased more than 20%. The markets we serve are large, and we are changing practice within them. Third, our ability to expand gross margin to our next milestone of 50% comes into clear focus with each subsequent quarter of progress, reaching nearly 40% non-GAAP gross margin in the third quarter and remaining disciplined in expense management provides fuel on our path to profitability.

Turning to commercial execution. Our third quarter results fell short of our expectations. Last week, I accepted the resignation of our Head of Sales, who has made the decision to retire. We have a strong sales leadership team in place that will now report to me directly as we conduct a search process, which is already underway.

This leadership change may result in some internal disruption in the fourth quarter, which is a factor we felt was prudent to take into account as we considered our approach to guidance for the remainder of the year. What I can assure you is that our team has an unwavering commitment to our customers and the patients they serve, and I expect we will demonstrate that commitment as we move through the fourth quarter and into next year.

Taking a closer look at the third quarter, revenue was $29.4 million, which represents 3% growth over the third quarter of last year. Treatment utilization was strong, and we remain disciplined in our pricing across consoles and consumables. We believe ASP strength indicates that customers see Tablo appropriately priced for the value delivered and consistent utilization reinforces that once a unit is installed, it's used and provides a long tail of recurring revenue. We also were pleased with our progress executing against a clear path to cash flow breakeven and then profitability.

This path begins with top line growth and gross margin expansion. It includes disciplined spend management, and it shows up in the both significant reduction in cash use we project for 2025 and in the leverage we see to the bottom line. Additionally, our base of clinical, financial and operational evidence supporting the advantages of in-sourcing continues to grow. Last week, there were 3 new data sets presented at the Annual Kidney Week Conference.

Among the findings, we presented data from more than 1 million Tablo treatments across approximately 750 facilities that show the clinical effectiveness of in-sourced dialysis in achieving rigorous treatment goals, including up to 24-hour treatments that typically involve the most critically ill patients. One of our customers, AdventHealth, also presented data from the conversion of their Ocala, Florida site to an in-sourced dialysis service line with Tablo.

Their results over 5 years showed a 94% reduction in serious cardiac or respiratory events, a sustained reduction in central line bloodstream infections, a very high nurse retention rate with greater than 95% dialysis staff satisfaction and a strong return on investment in the first 2 years of operations. These results support the sentiment we hear from many nurse leaders who believe that in-sourcing with Tablo should be the standard of care at any hospital that provides inpatient dialysis.

With that, I'll turn it over to Renee for more detail on the quarter before I provide closing comments.

Thank you, Leslie, and good afternoon, everyone. Revenue for the third quarter of $29.4 million consisted of $20.6 million in product revenue, which was slightly ahead of $20.3 million in the prior year period. Product revenue included console sales of $8.3 million and consumable sales of $12.2 million. Service and other revenue of $8.9 million grew 6% from $8.4 million in the prior year period. Recurring revenue from the sale of Tablo consumables and service was $21.1 million, slightly ahead of the third quarter of 2024.

Third quarter recurring revenue was dampened by ordering patterns for treatments across our large volume acute care customers that don't always perfectly mirror underlying utilization. For example, during the quarter, data from connected Tablo consoles showed that several of our large acute care customers performed twice as many treatments as they ordered. Thus far, in the fourth quarter, we have seen treatment orders accelerate to better match actual utilization.

We expect treatment revenue to normalize next year as we lap the comparison to an unusually strong fourth quarter in 2024, and we see orders from our larger acute care customers catch up with our usage data. We also believe there are steps we can take to help the ordering patterns of our customers more closely align with actual utilization to assist us with better visibility and forecasting. We will be working to make these improvements during 2026.

Next, I will walk through our gross margin and operating expenses for the quarter. Please refer to the table in today's earnings release for a reconciliation of GAAP to non-GAAP measures. Non-GAAP gross margin expanded another 350 basis points from last year, reaching 39.9% for the quarter, even with a 130 basis point headwind from the under-absorption of manufacturing overhead.

Excluding the manufacturing headwind, we would have seen non-GAAP gross margin above 41% for the first time. Product gross margin increased 250 basis points year-over-year to 45.7% from 43.2% in the third quarter of 2024. Service and other gross margin was 24.8%, more than doubling from the 12.5% we reported in the third quarter of 2024. This progress keeps us right on our path to the next milestone of 50%.

We are making progress against our plan to optimize inventory levels and gradually increase production, which further mitigates the gross margin impact of the manufacturing under absorption we have discussed all year. For the full year, I continue to expect a headwind of approximately 150 basis points, which will have a diminishing effect in 2026.

Moving to operating expenses. We continue to see the positive impact of actions taken primarily during the second half of 2024 to remove $80 million of annualized spend. For the quarter, non-GAAP operating expenses declined 17% to $22.1 million compared to $26.5 million in the third quarter of 2024. Non-GAAP operating loss was $10.4 million, over 35% below the operating loss of $16.1 million in the prior year period. Non-GAAP net loss was $12.4 million, was 39% lower than $20.2 million in the third quarter of 2024.

These measures reflect the positive results of our drive to profitability. Moving to our balance sheet. We ended the quarter with $182 million in cash, cash equivalents, short-term investments and restricted cash. We used approximately $6 million in cash during the quarter, driven by expanding gross margin, lower operating expenses and the optimization of inventory levels.

Turning to our guidance for 2025. Considering the factors Leslie and I have covered, we revised our 2025 revenue guidance to a range of $115 million to $120 million from our prior guidance of $122 million to $126 million. We continue to expect gross margin for the full year to be in the high 30% range. With regards to operating expenses, we remain on track in the low $90 million range for 2025.

The combination of revenue growth, gross margin expansion and expense discipline means that we continue to expect to use less than $50 of cash in 2025. As a reminder, we used more than $100 million in 2024. So we are trending towards more than a 50% reduction in operating cash use. We continue to believe our cash balances are sufficient through cash flow breakeven and beyond.

With that, I'll turn the call back over to Leslie for closing comments.

Thanks, Renee. I want to close this and that we operate in 2 large end markets where we remain the clear technology leader. We are now approaching 1,000 acute sites using Tablo on a run rate of 1 million treatments per year, and we expect to close the year having performed more than 3 million cumulative treatments on Tablo systems.

We are gaining scale with significant growth runway ahead as our installed base matures. With hundreds of customer master sales and service agreements already in place, our expansion opportunity within our current customer base alone is significant. And on top of that, we continue to convert new customers in this multibillion-dollar acute care market.

Gross margin has reached a new high. Our operating expenses have been rightsized, and we are well capitalized with cash that puts us in a strong position to deliver on our long-term mission. And importantly, our technology, in-sourcing expertise and customer experience moat is getting wider and deeper. All of this progress sets a powerful foundation for value creation over the long term.

Customer demand for what only Outset can offer continues to grow. Providers, including some of the largest health systems in the country, are realizing the enormous clinical, financial and operational advantages that in-sourcing with Tablo can deliver. The market opportunity remains wide open for us as we continue to improve our execution, which I believe will enable us to make significant progress in 2026 and beyond.

And with that, I think we are ready for Q&A. Operator, please open the lines, if you will.

[Operator Instructions] Our first question is going to come from the line of Rick Wise with Stifel.

A lot of questions. Just maybe -- and I think you make a persuasive case for -- and for the factors behind the quarter performance and the change in guidance and the positive outlook. But maybe come at this from a couple of directions. The guidance, Tim, the $6 million or $7 million at each end of the range, is that 1 order, 3 orders?

Is it -- I mean, is that all reflective of that? Or is there extra insurance baked in? And it must be incredibly frustrating. How conservative are you being about this since you have, as you cited, the one, headquarters approval and you're just getting the signatures on the other 12 hospitals. Just -- maybe just talk us through all that, if you would, for starters.

So Rick, this is Renee. I'll start sort of on the numbers commentary, and then I'll let Leslie sort of comment on our overall thinking beyond that. But certainly, the shortfall -- the way we look about it is, first of all, just what happened in the quarter, right? And so if you just look at Q3, the primary driver for the shortfall is a large console opportunity slipping from the third quarter into the fourth.

And so then we then took a step back. And of course, when we're trying to think about guidance for the remainder of the year, we're looking at all of those deals that were slated for the back half of the year that didn't close in Q3 and then anticipated to close in Q4 and where are we at with those deals. And I would say there are, again, sort of a couple of these larger enterprise deals where we are trying to change the standard of care and therefore, identifying that, just being realistic about where we think that those are at. And I would say factoring in the departure of our Head of Sales that this is a disruptive -- could be a disruptive situation, and we're just being mindful of that when we forecast the remainder of our guidance for the year.

Got you. No, that's clear. I don't know whether you wanted to say something, Leslie, or shall I go ahead?

Yes, please go ahead, Rick, that was well said by Renee.

Yes, very clear. And I'm going to ask a couple of questions, if I could. But console revenues were better than we were thinking this quarter. Again, I'm not sure how to balance the third quarter performance with the order timing commentary. I mean that was encouraging as was the service. Can you talk more about what you're seeing and just help us better understand the individual moving numbers and what we're looking at and how that fits into this larger narrative you're sharing today.

Sure. We -- yes, we did see an increased growth in console revenue over the third quarter of last year, which felt very positive. And at the same time, as you noted, we were very frustrated and not pleased with our own execution in terms of our ability to consistently predict the timing of deal close. We have more work to do there. We can be better, and we will be better.

I think it is important to recognize as we look forward that -- and I noted in the prepared remarks that the order size -- the order sizes of our -- the individual deals in our pipeline, it has grown substantially. The average deal size has grown by about 20%. And that has some implications, both sort of both good and challenging. I think great in the sense that we are seeing demand and very high interest, as we noted, from the largest health systems in the country.

And we also have to be ready for the challenges of being able to predictably and consistently call the timing of when those deals are going to close. And so while I think we have made a, a really meaningful amount of progress, foundational progress on -- over the last year, implementing a new sales process, new sales tools, hiring to a different sales profile, getting our organization really proficient at selling at the enterprise level. All those changes have taken root, and they really have helped to transform the organization. Our work is not done. And now it's time to refine and continue to improve our ability to control the deal timing and predict time to close. And that's our next step here.

Got you. And maybe just last for me for now. In looking for a new sales leader, Leslie, what kind of individual are you looking for? What kind of experience? What do you need them to bring? And sort of the unfair part of the question is -- how quickly do you think you can make this happen? And what are the implications of this sales leader transition for '26? Are we more anxious now? Should we be more anxious about either the outlook for '26 or the magnitude of '26 or the way the '26 year could unfold because of this particular issue?

Of course. Sure. I'm happy to address all of that. Maybe I'll take it from the top. In terms of the criteria for our search, and I'll emphasize that the search is already underway, and I'll address your question there in a second, Rick, around timing. But the search is underway. I don't think any of the criteria will surprise you, but I'll take you through it.

First and foremost is a background in capital equipment. Number two, a background and strong track record in enterprise sales, total conversion of health systems, total standardization of health systems, the ability to convert many hospitals inside a health system to standardization around 1, technology and 1, care delivery model. And someone, I would say, maybe 3 who has the capacity to act very strategically, but at the same time, is extremely immersed in the details, sort of obsessed with the details and involved with the customer and with our sales team every step of the way.

And last, I'll say somebody who is an exceptional coach, somebody who is an exceptional leader developer and will ensure that we continue to preserve what's great about Outset and our sales team right now, which is who they are as individuals and in the collective from a culture standpoint. So that's what we're going to have our eye on there, Rick, as we move forward in our search. I will say in terms of impact, let me start by several of our sales VPs were hired prior to Laura joining. So I think it's important to note that we have really good tenure and importantly, experience, both in acute and home in these top roles. So I want to emphasize that.

At the same time, we have many other very valuable team members who are serving in important roles and making meaningful contributions that remain very committed to Outset and our mission and the opportunity here.

I am very much looking forward to, as I know Renee is as well, is getting even more directly engaged with the team with the sales team now reporting to me and sales operations reporting to Renee and getting even deeper engagement with our customers.

That said, as Renee noted, whenever you make a change in sales leadership, you do see the potential for some distraction. What does that all mean at a practical level? It can mean fewer selling hours, right, as everybody sort of digests the change and gets ready for new leadership. So we did feel it was prudent to account for this in our revised guidance. But I am very confident that hiring a new sales leader will take us to the next level and help us get to the state of predictability and consistency around deal close timing that we're looking for.

Our next question comes from the line of Shagun Singh with RBC.

Leslie, I just wanted to kind of touch on the visibility and the growth outlook for your business here. In '25, you're delivering about 3% growth off of pretty easy comps last year. You're exiting the year with a 9% year-over-year decline. So firstly, what does that imply for '26? I think consensus is at 10.5% year-over-year growth. And then also, how do you think about the long-term growth of this business? Is this mid-single digit, high single-digit, low double-digit growth business? How should we think about it? It's definitely a large market opportunity, but how do you give investors conviction in the execution?

Yes, sure. Well, I'll start by reiterating something that you won't be surprised to hear me say. We haven't obviously provided guidance for any period past 2025. And obviously, we look forward to doing that in the future. I'm glad you touched on what hasn't changed, which is -- demand is growing despite the setback this quarter with deal timing, the deals in the pipeline are progressing and the size of those deals continues to get larger.

Our competitive differentiation, our in-sourcing ecosystem and moat is getting wide -- wider and wider and deeper. And the console utilization remains very high and really consistent, which we've always felt is extremely important because utilization is the most direct reflection of the customer experience. It's something we're really proud of, and it continues to feed that foundation of recurring revenue.

Obviously, what we saw this quarter is we still have work to do on this final piece of the commercial transformation, but we believe that work can be accelerated under new leadership. And so we do remain as optimistic and confident as ever about our future as we look forward because what we saw in the quarter, I don't want to trivialize it. We're not happy with it. We're not pleased with the execution. But what we saw in the quarter was a shift in timing.

We do know we have more work to do on capital sales execution to better anticipate these deal dynamics with these larger and larger deals. But that said, nothing has changed in our market opportunity or technology or know-how and the core customer demand from larger and larger health systems really gives us even more confidence in our ability to grow revenue at differentiated rates in the future. But that being said, I'll maybe transition from my -- sort of my color over to Renee for any other comments.

Yes, sure. I think as you think about just reflecting on the update that we've provided with our 2025 guidance and the trim on that number, it's a good starting point for how we should be thinking about 2026. Of course, highlighting all of the factors that we talked about today. So a change in sales leadership is something that you should probably also factor in, in the near term.

And I would just sort of reiterate around we aspire to be a higher growth a company that have a higher growth than 5% or 10%, and we believe that we've got the marketplace to do that. We just need to have some execution here on deal timing. The market has not changed and the product has not changed.

Got it. And just a clarification question. With respect to your comment on there is work remaining to be done, have the forecasting changes or anything that you're doing in the background, is that completed? Is that behind you? And then you did talk about some ordering patterns and that you would work through that in 2026. So does that mean we should expect '26 to be a transition year in any way, maybe first half, second half? Any color there would be great.

Yes, sure. I think it really sort of depends on which revenue stream you're speaking to. I think on the console side, it's clear that deal close and transition of close to shipment is of most importance. That is something that we need to continue to refine. And I would say it's probably the heaviest lift here in front of us. On the treatment side or the consumables, we get a ton of data from our connected Tablo devices and watch that on a monthly, if not a daily basis at this point and notice that utilization remains strong. And so really, it is just a timing issue with regards to the ordering pattern of a few large customers that didn't materialize in Q3.

And we have seen that those orders -- Q4 orders are beginning to more closely match utilization. So specific to that order or that area where we absolutely do need to do a bit more refinement. We need to get closer to our customers, more visibility. And we believe that we're going to be able to take those steps to help understand their ordering patterns, their supply chain management, et cetera, so that we can fully have better forecasting on the treatment side. But the consoles are being used. They are high utilization, that's remained consistent, and that's what's given us the strength for the opportunity ahead.

I'll just maybe chime in one other thought, Shagun, on the console side because you had asked about, hey, is there sort of more new kind of more foundational changes that are needed in this commercial transformation journey. And I would say no. I mean we have work to do to further cement the impact of all the changes. But look, I mean, a lot of really great foundational work has taken place and taken root from sales process to enterprise selling, the sales rep profile, the sales rep structure.

I mean we would not have been able to get this far over the last year without all of it. And now we need to kind of fine-tune focus on predictability and the ability to better forecast the timing of deal close. And there are certainly, suffice it to say, some lessons here from Q3 that we can and will apply to the predictability of deal close going forward, and we are going to get better as a result. But there are no profound or foundational changes incremental to what we've already implemented here over the last year, Shagun. So I just wanted to clarify that as well.

Our next question will come from the line of Marie Thibault with BTIG.

Just wanted to follow up to understand the consumables sales order timing issue a little bit more closely. Is that just sort of an issue of the hospitals maybe overordered, weren't as good on their own forecasting? I don't recall really hearing of this sort of difference between the treatment patterns and the order pattern happening in the recent past. So I just want to understand that, what's being done to prevent it?

And then sort of the timing of that coming back, right? Should we think of Q4 being order and revenue very similar to what we're used to seeing on utilization? Is there some pull forward or making up for some of the missed revenue in Q3? Does that extend into 2026? Just a little more clarity on that.

Sure. Marie, happy to help give some more information and highlights here. I think ultimately, this is a limited group of higher volume customers that we saw for Q3, where we ultimately expected in that third month of the quarter for an additional order to be materialized, and that just didn't happen. Each customer is unique, right? They've got their own supply chain policies and practices and managing of their own balance sheets.

And so we're going to get closer to that information. We're going to work on that incrementally to providing our customers with all of the information that we have on our side that we're seeing from a forecasting perspective and just having closer collaboration.

This is, I would say, a defined set of customers that we need to go after and tackle this work, and we are absolutely committed to doing that for 2026. I think what we're predicting for the back half of this year within our guidance range is more of a normalized what we saw for Q1 and Q2 of this year. We -- to date, for the quarter, we have not seen any significant orders that we were in absence of what happened in Q3.

We've seen, again, just very consistent ordering coming through in Q4 matching utilization incrementally to, I think, how customers think about their balance sheets and their policies, right? They're also trying to predict the amount of activity that they're going to have in their hospitals, what does flu season look like? What does -- what do they expect just coming through the door. And so we just need to get closer to that information. I think our sales group has done a great start, and we just need to continue to get closer to customers specific to treatment utilization and treatment buying.

Okay. Understood. And a follow-up here on the console side and the Head of Sales resignation. When exactly in the quarter did that happen? And is there a way to sort of size up some of the guidance cut? How much of that is coming from sort of the timing issues around console orders closing versus some uncertainty about sales force disruption? Is there a way to kind of parse out what you're assuming in that $6 million guidance cut?

Of course, yes. Why don't I can start by addressing your first question. And then, Renee, if you have thoughts on guidance, I'll transition over to you. So Marie, to answer your question, the change in our sales leader occurred after the close of the quarter recently here. And it was actually last week. So it was very recent.

And I think look, I'm only reflecting back historically as I've seen these sorts of changes and evolutions in the past that there can be some time in the follow-on quarter where members of the commercial team naturally need time to kind of digest and absorb and that can, not always, but can lead to some distraction and less time available for selling forward. And so we were just trying to be cognizant of that and consider it as a factor, potential factor for the remainder of this year. I don't know if you want to pick up on anything further on the guidance.

I would say, Marie, specific to the console activity for third quarter, you might not be surprised in that console activity because it's a capital sale is generally in the third month of the quarter, where we start to see visibility and what orders are going to be coming in. So late in September was that sort of where that activity fell through, similarly on the consumables treatment ordering as well, sort of all late in the third month of the quarter.

And as we then look towards what should we update guidance for, for the year, what is our full year forecast, we took that into consideration as well as, as I mentioned, our full set of deal review for what was anticipated now for Q4, where are those at current conversations, getting really close to the sales organization as to the timing of that event. And that plus the resignation of our sales leader, we factored all of those in, and that's how we've come up with the guidance range of $115 million to $120...

Our next question comes from the line of Josh Jennings with TD Cowen.

I was hoping to just follow up on the update on the guidance and just make sure that you're not seeing any orders fall out of the pipeline, not seeing any order cancellation. I believe you may have commented on that, but just to circle back on that if you haven't. And then also just on the sales force, have you seen much transition through the quarter? Or is it really just the head of the sales organization that's departed? Is there any other transitions that you guys are considering in the guidance? Sorry that's 2 questions in one, but I have one more.

You're efficient, Josh. Thank you. Thanks for asking about the deal flow and sort of the deal progress. Short story long, no. None of the deals that were projected to close in Q3 and in Q4 have dropped out of the pipeline. The deal that we saw as a timing shift around out of Q3 forward specifically remains in the final stages of our sales process.

And I think we had given some color to that in the script just to hopefully provide some context about as we get up into these enterprise-wide deals with a dozen or dozens of hospitals, there are more and more stakeholders and a much greater number of approvals as appropriate, it's a big decision on the part of the health system to down-select to one technology and in-source.

And so we continue to work through all of those steps. I think our sales team is taking all the right steps to close them. None of these opportunities have fallen out of the pipeline, which is -- which we feel very good about. And then in terms of the change in sales leadership, this is our primary change. As I mentioned, we have several of our sales vice presidents who were hired prior to Laura joining. And so we do have really good tenure experience and commitment at that level. We don't have any other significant changes at this time at the VP level.

And we know we have a very, very committed team who believes in the change that this is hard work. We are changing a space that hasn't changed in 40 years and that's never easy to do. But this is a resilient team, and this is a team who has never been more motivated to kind of make a permanent and profound change in this industry, both acute and home for the benefit of -- ultimately the benefit of patients. So we have a team that is ready to execute and ultimately to deliver on our long-term mission and achieve the differentiated growth rates we know are capable in such a large market with a technology leader.

And maybe just lastly to circle up on just the home channel and your success there in 3Q and outlook for 4Q. It sounds like the turbulence was in the acute channel. You have these MDO contracts in place with the 5 largest organizations. Anything of note to provide more detail there and then also in the SNF channel?

Yes. Sure. Yes. Thanks for the question. On the home side, we always start by talking about the retention rate, which is foundational to growth. And we have seen, again, this past quarter, very stable and high retention rates in the home population even as that home population continues to grow, which is great to see.

We have continued to see growth in the home programs of our largest MDO customers, which, again, we see as a direct reflection of their experience and the experience of their patients. We continue to hear from the MDOs that their patients talk about a materially easier training time, materially easier use, day-to-day use and this feeling better effect, which we don't talk about quarter-over-quarter on earnings calls. But this feeling better effect has stayed with us really literally from patient 1, talking about feeling physiologically better on Tablo at home and in the acute setting. And so we feel really good actually about the progress across the home and across these MDO customers and into the SNF opportunity, which we continue to look at as a whole future vector of additional growth in the home channel.

We have a follow-up question from the line of Shagun Singh with RBC.

Just a quick follow-up on '26. I think you said 2025 is a good proxy for '26 as of now. I just wanted to make sure I heard that correctly. And then also just anything you can share on Q1? Would you expect some of the orders that didn't come in 2025 or Q4 to come in Q1 '26, so we should expect a stronger Q1 versus the balance of the year? And then I know that this year in '25, you started with a pretty broad range of 1% to 10%. Should we expect a wide range in 2026? Just any directional color on guidance philosophy would be helpful.

Sure. I think to clarify on my statement specific to 2025 and the good place to start is I specifically said we reduced 2025 guidance by, let's just calculate it, roughly $7 million. And so that's a good place for you to start when you're thinking about 2026 forward. And I would say, at this point, as we updated, the orders from Q3 and Q4 have now slipped into Q4 and into 2026. At this point, sort of forecasting forward into Q1 and specifically what our guidance range is going to be at that point, I'm just going to reserve the right to talk about that when we've got a full update on 2026 guidance.

And we have a follow-up question from the line of Rick Wise with Stifel.

Sorry to put you on the spot, folks. But just listening to Shagun's question, I'm sort of thinking, is it impossible? Is it highly improbable that the $7 million or whatever the number is, is it impossible that it falls into the fourth quarter? I mean -- or does it seem highly likely it won't? I mean you see where I'm getting at. Sorry to put you on the spot.

No, that's fine, Rick. As we were thinking about how to guide for the remainder of the year and for '25, our philosophy took into account, again, the fact that we are changing the sales leadership and that some of these deals will close in Q4 and some will close in Q1. And so that new range of $115 million to $120 million does not assume that all of the deals, again, if you think about a $7 million reduction, it does not assume that all those come into Q4. It's not to say that it's impossible or it could never happen. But again, given all the factors at play here for the remainder of the year, we felt it was prudent to take this approach.

And I am now showing no further questions, and I would like to hand the conference back over to Leslie Trigg for closing remarks.

Okay. Thank you, and thank you again for your patience and bearing with our top technical start there. I do appreciate everybody joining today. And I'd like to close by thanking our customers and our team for the meaningful difference they make every day in the lives of dialysis patients. Thank you all, and have a great evening.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great evening.

Good morning, everyone. I'm Steven Trainor, Vice President with Morgan Stanley. I'm happy to be hosting Outset Medical today. With us is Leslie Trigg, CEO; and Renee Gaeta, CFO. Before we dive in, I just want to note for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, let's get started. Thank you both for being here today.

Maybe to kick off, it would be great to get some overview on the history of Outset and how you guys have evolved since the IPO. A lot has changed over that time period. So maybe if you could provide investors some color on that to get started.

Sure. I'm happy to. Well, thanks again for having us. Maybe I'll take a quick step back and then kind of take a step forward. But the quick step back on what has not changed. We still operate in one of the largest markets in health care. We have a highly differentiated technology in a space that hasn't seen new technology in several decades with, as we sit here today, a paucity of competitors and a wide open runway for continued growth. So none of that has changed all in the best ways.

What has changed principally, first and foremost is growth compared to kind of where we were in the 2020 IPO, Tablo is now used in over 900 hospitals and health care facilities across the country. As we closed '24, we had an installed base of roughly 6,000 consoles. And today, we are run rating to over 1 million treatments a year. So it's been really exciting to watch that develop and evolve in the acute in the post-acute settings. On the bottom line, we've made a lot of good progress as well. We started life as a public company with a negative gross margin back in 2020. And closed up last quarter, approaching 40% with a product gross margin just about touching 50%. So we're super proud of the team's efforts there and continue to make great progress.

We also spent the last year to 18 months removing about $80 million of operating expenses and streamlining the business across the board which has put us in a really good shape to achieve profitability here in the near-term horizon.

That's great. I think a lot of those topics, we're going to dive in more, but that's a great overview.

Sounds good.

Thank you for that. So maybe talking about top line growth and the drivers really behind that. Last month, you reported Q2 results, which exceeded analyst estimates by 7%. So maybe just talk about what was driving that top line performance? And then how do you see that going forward in the second half of the year?

Sure. Yes. I mean we had tremendous results both in Q1 and in Q2. I think we've been really happy with, number one, our commercial transformation that we really started last year starting to present dividends this year, and we continue to expect that, that will present dividends going forward. Demand is strong for our product and growing.

Our technology is really differentiated and our customers are starting to experience the significant financial, operational and clinical benefits of our products. And so as you look at our results for the quarter, we had product revenue growing at 20% year-over-year. Strong treatment utilization and growth of 17% for the quarter and for Q1 as well. So good, strong clean execution throughout the sort of revenue channels. And as we look forward to the back half of the year, that is certainly something that when we provided guidance, we do expect to see continued growth in 2025 and beyond.

Great. And maybe give us some color on when you think about the business model and going to market, how do you approach that? And obviously, console placement drives that. But maybe just give us some more color on how you go to market there.

Yes, I can start there. Well, so we operate in 2 very, very large end markets. The acute and the post-acute market, we sized at roughly about $2.5 billion and then the home market at over $9 billion. So starting there. The business model itself, and this is probably one of the most underappreciated aspects of Outset strength is the capital sale and recurring revenue model.

And so we sell the capital upfront. And each one of those consoles when sold in place generates about $20,000 a year, effectively in perpetuity in the acute post-acute setting, and about $15,000 a year in disposables and service in the home. Together, those 2 components, capital sales driving this recurring revenue have resulted as we sit here today, an expectation that we will exit Q4 with over $100 million in recurring revenue alone. This is high margin, very predictable, very high visibility recurring revenue. We continue to add to that. It's a big part of our strategy. Our recurring revenue base, if you will, are the disposables, that are used during every treatment and then field service. Our field service team provides an exceptional experience that's translated in reattach rates annually for service that exceed 95%.

So again, high visibility and high predictability there. But we continue to build incremental sort of recurring revenue streams around that in selling now EMR. We're fully connected and integrated in with Epic and Cerner. So that's a new recurring revenue stream and data analytics and things like implementation services as we move forward, all work together to give us a vision of higher and higher recurring revenue as a percentage of total revenue. But as we think about the acute market we're getting to go to market and what's really driving the uptake and the momentum there, it's really, as Renee alluded to, the financial, the clinical and the operational benefits that Tablo is providing.

And the way that, that gets transmitted to hospitals is through a clinical service model change. Most hospitals for decades have outsourced dialysis to a third-party service provider such as DaVita or Fresenius or others. And it's really been kind of a set it and forget it model. These hospitals write very big checks every year for a third party to bring a nurse into the hospital to provide that dialysis treatment when it's needed. And that model does not always provide the highest clinical outcomes for the hospital. Patients often have to wait. And you can imagine somebody you know or yourself needing dialysis and having to wait in the IC or on the floor for 2, 3, 4, 10 hours for that outside nurse to come in and give you the treatment that you need. This service model in-sourcing dialysis and allowing the hospital to really control their own destiny they use their own nurses with Tablo to deliver the dialysis care that's needed when the patient needs it, not when it's convenient for the outside provider to provide it.

So that's some of the clinical benefit. And then the financial cost reduction, we will typically see anywhere from, call it, a 50% to 75% reduction in the cost to the hospital dialysis when it is in-sourced with Tablo. So all of that is sort of fueling a value proposition that is evergreen, but probably never more important than it is today as many hospitals are looking for tangible ways to reduce cost and increase their margins.

That's great. I think we'll dive in the commercial organization a little bit more in a second. But going to gross margins, I know that's been a big theme for you this year in your earnings calls and also just in general since the IPO. But can you maybe talk about where you stand today, where you're trying to be longer term? And then what are you really doing to drive that expansion?

Yes, certainly. We are -- I would say, gross margin has been a point of pride for our organization. But we're not done yet. It is definitely a focus of ours. As Leslie mentioned, we went public with a negative gross margin, and we've been improving that and increase in gross margin every single year since. And we continue to plan to do so. So for the second quarter, we had a non-GAAP gross margin of 38.4%, which was 110 basis point improvement from the prior year. But also -- it still included a 100 basis point headwind from manufacturing under-absorption, which throughout 2026, will start to alleviate and go away.

So we -- the team is absolutely focused to it every single day. Gross margin is impacted largely by not only console cost-down programs, efficiencies in our operations, but also, of course, revenue mix, what's the drivers of revenue. And so one of the things that we like to highlight and make sure people are aware, as we sort of reignite console growth on the revenue side, that will have a slightly dampening effect to gross margin in the near term and then -- but ultimately pulls through higher gross margin products when we get the treatment, the consumables and the service to pull through in the subsequent periods.

Great. And then maybe could you just unpack the aspect from the product and the service margin. And I think that's what you're getting at with as you implement them overtime?

Exactly. Yes. The product revenue specifically sort of the console aspect of it because that's the first item in a transaction that sort of gets sold. We've worked really, really hard to take the console and work down the cost and that the efficiencies, the scales and the manufacturing. And we've done, I think, a great job. We've got some -- probably some a little bit more tweaks to go there. We've also made significant efficiencies in our cartridge or treatment gross margins and then service, as you mentioned, is the third leg that we certainly highlighted in Q2, it is something that we saw a little bit of a retreatment there.

It will ebb and flow and fluctuate, but we are 100% focused to it as an organization, how to optimize that service delivery, but also at the same time, ensuring that we continue to provide really strong customer service for those -- for our customers with regards to service and console uptime.

Great. And maybe moving to utilization. Can you talk about how that's trended and how that might look different in an acute and home?

Yes. It's remained remarkably consistent, I would say, just for some context to in the acute setting, it's roughly 4 to 5 treatments per week per console. And then in the home setting, it's about 3 to 4 treatments per week per console. Tablo is connected to the cloud. So we are able to track the identified information very closely, and we do so. We have noticed that once a console is placed, it is used.

That's great. And maybe let's talk more just about acute versus home more broadly and lending those markets. How are you growing today in each of those? And then longer term, how do you think about the penetration between those two?

Yes. I'll take that one. So in the acute and when we say acute just to define the terms we mean kind of critical care hospitals really of any size and then long-term acute care LTACs and rehab. And we've seen really strong growth across the board. To set the stage, we are now contracted with all 8 of the largest 8 players on the critical care side, all sort of brand names that you would be very familiar with across the country. And then we are also contracted with all 10 of the largest 10 LTACs and rehab. And again, many names that you would be familiar with there.

So we size the acute, post-acute market on a console basis at about 40,000 to 45,000 consoles. So if you rewind the tape a bit and look at where we exited 2024 in terms of our installed base, we think we're about low double digits penetrated in the acute market. And again, what's really driving that rapid penetration is the value proposition. We are able to go into systems really of any size and pretty quickly tell them through some proprietary financial model that we have, exactly how much they're going to face through in-sourcing with Tablo. You're going to terminate your outsourced agreement with your third-party hire several dialysis nurses to work for the hospital, bring in Tablo and really, again, control your own destiny from a clinical standpoint, a financial standpoint and also an operational standpoint.

One thing we've learned that I didn't know when we started all this, was that when hospitals have joint commission surveys, it is the one of the top 5 citations that hospitals typically get dinged on, is actually maintenance and the provision of dialysis. And if the hospital is outsourcing that, they don't control their own compliance either. And so I think this value proposition sort of continues to snowball and get stronger and stronger. We started with principally a financial value proposition, again, 50% to 75% cost reduction. What we have learned through our customers is how strong the clinical benefits are. For example, a growing number of hospitals through their Chief Nursing Officers has started to publish their results, for example, on a lower rate of hospital-acquired infections, a lower rate of dialysis patients coding during their visit kind of pre outsourced to post in-source much lower, lower length of stay. Because, again, those patients can be treated with dialysis when they need it, not when it's convenient for the outsource provider to deliver it.

And so I think as more and more hospitals start to publish and share their results, we're starting to kind of see the beginning of a flywheel effect. That's only going to create more demand and allow us to progress those deals through the pipeline to close. So it's acute and post-acute, that's really fueling the majority of our growth. We view that as kind of Wave 1 of growth and we're, again, just getting started here with low double-digit penetration. And then kind of a Wave 2 is home. And these are interconnected because our intermediate to long-term vision is actually to work with the acute care customers to stand up their own home programs. Many, many health systems around the country do want to start their own home dialysis programs because increasingly, they are lacking ways to discharge dialysis patients as we're seeing waves of dialysis clinics continue to close, there's nowhere to discharge those patients.

And so over the longer term, the acute and the home are actually knitted together using, again, our growing and increasingly large footprint of these 900 hospitals using Tablo for inpatient dialysis.

That's super helpful. And then you mentioned the Chief Nursing Officer. I know you're growing on full time. Maybe talk about how they've been effective in that role and how that -- you see that in the kind of sales process.

Sure. Yes. What we learned as we moved, I would say, from the super early adopters to the large health systems on mainstream adopters, what we really learned was how vital the Chief Nursing Officer, CNO, is to their decision-making. It's the CFO who's going to get excited about the financial cost reduction. It's the CNO that's going to do all the work. The Chief Financial Officer is not going to stand up a new insourced dialysis service line. It's the CNO.

And that's one of the ways I think that we had to change and evolve in our sales process and understanding, hey, there's another really important stakeholder here that oftentimes we weren't paying enough attention to. And so as our footprint grew and we saw the vital importance of the Chief Nursing Officer to our sales process and increasingly by the CIO as well, and that was part of the reason why we went after this EMR integration. We realized that we would benefit as a team from having a Chief Nursing Officer, who had insourced with Tablo at a hospital. And that's exactly what she has done. And her own results were pretty stunning. I think her hospital experienced a 75% reduction in the CLAB stream or hospital-acquired infection rate. and something like almost a 300% increase in their patient volume in a 95-plus percent treatment success rate.

So she's really been able to come in and kind of take her blueprint for success and implementation and share it with other CNOs at potential new customer sites. So it's been terrific to have her on board so far. But it really broadly speaks to, again, the importance of the CNO and kind of our C-suite sales process.

Great. And then obviously, your value proposition is very different than some competitors. But maybe just give us a view of the competitor landscape and then really what is the key thing you see when people are making decisions, why they picked Tablo?

Yes. It's something I was talking to some of the other day and they were asking the same question who's your competitor? And the truth of the matter is it's really behavior change is our competitor. And in that sense, we're no different than the other novel medical device company trying to get, whether it's a clinician or a health system executive just think about doing something different. But yes, I would say Inertia is our biggest competitor. It's kind of, well, this is the way we do it, and we've always done this way. And it's not working great, but it's fine. So that is our principal competitor.

Now as we look kind of out onto the horizon kind of in the equipment space, we have sort of some of the incumbent players. As I mentioned, those technologies really have not materially evolved or advanced in decades. And we don't -- and we're not -- we're going to stay vigilant. We're certainly not going to take anybody for granted. But we don't see anybody on the device side that really has, I would say, the full package. And what do I mean by that? The technology is just the beginning, and this is something we've learned over the last 5 years of growing in this market, it goes far beyond the device.

When you're helping a hospital make a, again, a clinical service model change, they need a trusted partner with know-how, and that know-how is actually around how do I insource a new service line? How do I terminate a service agreement with a third party and bring all this in-house? Where do I find the nursing staff? How do I train the nursing staff? What are all the steps and what's the right order of operations for those steps? And so we actually act as a change management partner now through that process. And we have kind of our own proprietary playbook for how to do this, number one. Number two, you need an incredibly strong service and support team. And as we now are supporting in the field an installed base of over 6,000 consoles, we've gotten really, really good at that. We provide an exceptional service experience day to day to day. We provide an immense amount of data now to the hospitals with proprietary data analytics, not only on all the clinical treatments.

We have, I think, at last count, 3.5 or more trillion data points in our cloud. That's incredibly powerful for us and our customers, not only today, but moving forward, as you think about sort of the AI-enabled and machine learning algorithm tools that we can apply to the service experience and machine uptime that Renee alluded to, and even clinical data analytics in the future. And that's kind of everything that we bring to bear, really as a partner to these hospitals more than a advice provider. And that's quite unique, and those moats, we think, are going to be very durable for some time to come.

Great. And maybe just talking about the Tablo system itself. Like what makes it easy to use and maybe just explain how it's so different than some of the legacy systems that you're going in and helping change?

Well, I think it's evolved. I mean you've got sort of foundationally how is it different foundationally. It is the only system that in one small integrated 36-inch box, can -- but don't ask me that question, by the way, because this could be an hour just on the topic. But we were the first to have a single integrated system that purified water on demand, any kind of water. Made dialysis solution made the dialysate on demand customized to your prescription versus my prescription, that had never been done before.

We were the first system to have 2-way wireless data transmission. So we, for example, all of our software updates are done OTA over the air, sort of Tesla style, which is now pretty commonplace across consumer products, but less so in the dialysis and critical care space. And we were the first to offer a system that was loaded up with over 70 sensors that automated a lot of the steps of set up. And so what's the so what who cares? Well, it has made it very fast to learn and maintain your competency on. There's nothing to memorize. There's no mental math. Tablo kind of almost does it all for you. And then how did we evolve it by putting again the kind of the rings of EMR interoperability around it, the data ring around it in data analytics, the field service experience and then later, our expertise around how you go from outsourced to insource.

So the foundations remain highly differentiated, and those are still unique to Tablo. But we always kind of challenge ourselves how do we deliver more and how do we deliver more to our customers and to our patients, and we're not going to stop innovating.

Now maybe let's talk about the sales transformation. And as you penetrate these markets and getting people from outsourced to in-source, right? I know you've done a lot of work in the past year specifically and trying to change how you go about that. So maybe just give us an update on where that stands and what do you see that's left going forward for this year or next year on that specific transformation you're putting into place?

Yes, sure. Well, a little bit of the history behind it. It kind of goes back to your first question with sort of what's changed since the IPO. We grew very, very rapidly, early. And in hindsight, recognize where did that growth come from? In the acute space, it was really the classic early adopters. And our original sales team on the capital side did a great job with that customer segment. As we kind of earn the right to sell at an enterprise level, our deals now in our pipeline. What do I mean by enterprise level? I mean we're talking about health systems that may have dozens of hospitals.

And their vision is, hey, we want to in-source, standardize to this notion of Tablo in-sourcing across the board. That is a very, very, very different sales process. You might be going back to the CNO, you might be dealing with 20 CNO and 20 CEOs and 20 CFOs because you've got to get buy-in kind of both at the local level and also at the corporate level. And that's a really different sales process. We didn't have that sales process. We had more of a classic device sales process, sort of 5 to 10 Tablos at one hospital and then you move on to the next hospital, the next hospital. So we recognized probably a bit too late, probably not probably, definitely too late that we needed a different skill set in our capital sales team.

We needed a different sales process that was paired to the opportunity, this enterprise-wide opportunity. And we needed more powerful kind of data tools to help our team move those deals more predictably and more visibly through the sales process to close. And that is all the work that we undertook in late 2023 and through 2024. So where are we today, getting to the last part of your question, we've now had 3 quarters of -- and have a really, really good process. The leading indicators that we look to are #1, is the pipeline growing, is the customer demand growing, check. We grew the pipeline. We talked about this on the last earnings call. again sequentially and also year-over-year. So we do have the largest pipeline and amount of customer demand that we've ever had at least in several years, one.

Two, we have more of those deals, a higher percentage of those deals in the later stages of our pipeline; and three, we're closing a higher percentage of deals. And so as we look to last quarter, it wasn't like we just closed one big deal and had a great quarter. I mean, the team closed a lot of business. And we saw existing customers expanding their use of Tablo within their network to new hospitals. And then we saw any number of like new larger customers coming to in-sourcing for the first time. So those are all the leading indicators that we look to having really now, I think, mostly accomplished what we set out to do across team and process and systems.

Great. And then maybe just talk about like the sales time line. And when you first reach out and obviously, it can be a long process of trying to get those decision makers on board, but maybe just give us a view of how that looks on average?

Sure. It's -- our typical sales process is somewhere in the 9- to 12-month range. That's actually been pretty stable and steady. We've been asked recently about capital spending and are we seeing any elongation in our sales cycle. And the short answer to that is no. We'll say knock on wood, so far so good. We haven't seen any change in the behavior in the acute world with regard to capital spending. So by and large, that 9 to 12 months has been very consistent for us.

Do we see deals come in and close earlier than 9 months? Absolutely. Do we see bigger deals, hundreds of consoles that take longer than 12 months? Absolutely. And so there, of course, like anything else in life, there's a there's a range, but our mean has continued to hover in the 9 to 12 months to

Great. And in terms of the spending, there's been obviously talk on federal funding cuts impacting customers. I guess can you just talk about what you've seen there or heard or if you've seen any slowdown?

We have not. So we have not seen any slowdown. We are obviously keeping a very watchful eye in our weekly conversations with our acute and post-acute customers, but I have not seen any evidence for that. I think also what's really, again, unique about Tablo and our sales process is that we are delivering a very large amount of value to the customer in a very short amount of time. That hospital will see kind of day 1 dollar one savings. The cost reduction we're talking about is very tangible. It's -- we are going to invoice you less money for your supplies. You are going to be paying your own nurses less money than you're paying your outsourced providers. So it's very easy to see, and it shows up effectively the first day that they plug in Tablo and treat on it for the first time. So I think that's helpful.

Also, a hospital is not spending millions of dollars on the capital acquisition of Tablo. So it's a relatively low capital acquisition cost. And when we've looked at the payback periods for most hospitals, it's inside of 12 months. That will vary by their volume, right? And their utilization, are they using Tablo in the ICU, where they have longer dialysis treatments, and so they're going to have a little fewer treatments per week versus outside the ICU, they're running regular 3- to 4-hour treatments and they might be using Tablo several times a day. So it is dependent on volume but across the board and our customer base, typically that payback period is under 12 months. So I think all of those things tend to kind of elevate Tablo up the priority list, if you will, as hospitals are thinking about their capital spending decisions.

Great. Talked about console growth margins. The other priority is obviously profitability. So let's maybe talk about that and how the plans to reach profitability? And then how do you feel like when you'll get there and what you're targeting over coming months?

Yes, sure. I mean, as we've talked about this sort of commercial transformation and all of the changes that the organization has gone through, one of those levers that we took was to really reduce the OpEx spend as well, really get narrowed focus on exactly knowing what we're going to execute on for 2025. And I can tell you across the organization, those are very clear. And so we've treated out about $80 million in OpEx spend out of the P&L. You can see that those decisions are materializing in our financial statements which is fantastic and the teams are definitely focused to it and executing consistently.

We know that near-term profitability is important to not only us, to our shareholders as well. And I don't see any reason why that's not going to continue to execute for 2026 and beyond. We are marching towards it. I think importantly, to understand not only on the OpEx side, also on the cash burn side because that's important. We had over $100 million of cash burn in 2024. This year, we have committed to less than $50 million, and we are absolutely marching towards that. Those together in combination. I think that our cash burn will then even step down even lower in 2026 on an annual basis. So we are marching towards it and cannot wait to be excited enough to get to that point.

That's great. Maybe just talking about your guidance. So you raised and narrowed your guidance to $122 million to $126 million. This suggests some slower growth perhaps since the second half of the year versus the first half of the year. Can you just kind of talk about that? And then what's your philosophy on guidance overall? And how should the Street think about those numbers?

Sure. Yes, as we came into 2025, we did -- we set a range of $115 million to $125 million, a little bit of a wider range and had initially started with and have continued the messaging around being conservative for this year. We are executing against that plan, really excited about the momentum in the business. And I think one important point when you look at our updated guidance, the midpoint of our range does indicate a slight growth in the second half of the year versus the first half of the year. But again, back to the commitment to a conservative guidance and issuing guidance for the year and tracking against that goal.

Okay. And then what color could you maybe give on '26? I know you can't provide guidance yet, but how are you thinking about that? And then maybe just higher level on the growth profile for next year and the year

Yes. I think as you think about guidance, we've set for this year, you're right, quantitatively, we have not spoken to 2026. We will do that in due time, and we're really excited about that when we come through the beginning of the year, as we think about what are qualitatively sort of the drivers there. Everything that we've stated today and focused on for 2025, we'll continue to pay dividends into 2026 and beyond, quite frankly. Growth, return to revenue growth, seeing growth in all portions of our revenue stream, but in particular, that first initial sale into console growth is extremely important to us. And there is no reason that I see that we will not continue to be sort of in the range of med tech, high-growth companies. That is absolutely our target.

Great. And maybe just one more. I know you touched on cash and your goal of this year using under $50 million. But maybe just talk about how the balance sheet looks today and how you view that between now and becoming profitable?

Yes, with the recapitalization and we refinance the debt, our balance sheet is very strong. We have plenty of cash on the balance sheet to get us through to profitability and breakeven and we've sort of moderated or rightsize the debt position. That also includes the bad debt is interest-only during the term with the balloon payment at the end. So that gives us the flexibility to really run our business and make the strategic decisions that we need. And so we feel very comfortable with our balance sheet and therefore, the ability to continue to push and invest in growth but also optimize towards profitability ultimately.

Great. And then maybe we only have a few minutes left, just higher level, maybe give us some thoughts on the next 3 to 5 years, how you think about strategic priorities? And where do you really see the company going by 2030, for example?

Yes. Well, as I look out to 2030, which is even difficult to imagine, my first goal is to stay alive. So hopefully, that will materialize. But I think the picture I have a outset in my mind. Number one, we are the industry-leading partner for acute and post-acute care hands down. I envision that in-sourcing is so commonplace that it will seem weird if a hospital is still outsourced. In terms of our own growth, I would imagine that our market penetration, our share of the acute space would be commensurate with an industry-leading position, and there is no reason why that will not happen as we sit here today.

I also think that as an organization, we will have the opportunity to realize this vision of acute to home and have an opportunity to change the channel through which patients can access home dialysis. Us as an organization, we will continue to grow in home and be able to realize the benefits, and that are pretty profound actually for patients who are able to leave a dialysis clinic and enjoy all of the very obvious benefits, again, around controlling their own destiny at home, and that we'll have an opportunity to do that in a multichannel fashion.

In terms of the complexion of the organization, as Renee alluded to, I think we will be well into enjoying the many benefits of being a profitable organization, a sustainably profitable organization. that is still growing at a very differentiated rate compared to our med tech peers and has an enviable gross margin. So that's the vision. And there's no reason now as we sit here with the team transformed and the technology lead that we have kind of the experience and the know-how and the learning some of it through the school of Hard Knox, but we'll take it that we can't execute and reach that vision.

Great. Thank you. And then maybe just to close it out, any thoughts for investors maybe something that's less appreciated in the story or something that people should focus on more as they think about the opportunity?

Sure, well, maybe 2 things that come to mind to circle back. One, I think, is the strength of the recurring revenue business model. And even I underappreciated that when we first kind of got started. But as we sit here today with roughly kind of 65% of our revenue recurring, highly predictable, high gross margin and a lot of visibility to that. I think it speaks to the user experience as well. customers, whether patients or hospitals don't continue to use products that don't work. And so one of the reasons that I think we're really proud of the recurring revenue streams that we have is that it does speak to the retention, both retention at home being very, very high and retention of our acute customers being very, very high.

So I think the recurring -- the power of the recurring revenue business model is probably a little underappreciated and I think the strength of Outset as a growing powerhouse in the acute care space is probably a little underappreciated and just how big this market really is. By the way, $2.5 billion, that's U.S. only, right? And so as we think out, whether it's 2030 or beyond, there's also a big bad world out there that we can take advantage of. So I think probably those are the 2 elements, kind of acute care powerhouse and the strength of the growing recurring revenue foundation that we're really proud of and maybe a bit underappreciated by investors.

Great. Thank you. Well, thanks for being with us today and really appreciate it.

Thank you so much. Appreciate it as well.